Experts have expressed fears about the bubble that may arise in the banking sector, should government fail to provide a favourable business environment that would boost performance in the real sector and sustain economic growth after
With the Central Bank of Nigeria’s (CBN) decision to increase banks’ Loan-to-Deposit Ratio (LDR) to 65 per cent last year, in a bid to improve lending to the real sector, a large chunk of money has left the coffers of the banks.
Consequently, they argued that with the continued rise in the number of confirmed cases and full lockdown enforced in a few states including Lagos, Ogun, and the FCT, a lot of businesses, even operations of companies under the real sector could lose revenue and ultimately affect the repayment of credit facilities granted to players in the oil and gas sector, SMEs and some others in the non-oil sector.
According to them, should the lockdown be extended, aggregate demand will suffer as consumers and businesses will be compelled to cut spending through the rest of the year exacerbated by the crash in the prices of crude oil across the globe.
They categorically stated that crude oil price slump and the global disruptions as a result of the coronavirus pandemic would negatively affect the credit profile of Nigerian banks, shore up their Non-Performing Loans (NPLs), and erode their profitability.
Specifically, the chief research officer of Investdata Consulting Limited said: “The banks are highly exposed to systemic risk driven by the on-going coronavirus and oscillating oil prices that trigger another economic downturn as global and domestic lockdown is taking a toll on the national economy.
“The slowdown in the system will have vicarious effects on banks as other businesses profit will drop, servicing of debt and payback will be a problem, which will trigger the non-performing loan of many banks.
He added; “But the banks with low LDR and strong risk management strategy that targeted consumer loan may not suffer much.”
The former General Secretary of Independence Shareholders Association, Adebayo Adeleke said the situation might not necessarily point to the likelihood of higher rate of loan default or increase in NPLs if the CBN and other agencies support business operators with waivers and moratorium.
“Globally, this is force majeure (unforeseen circumstances). The CBN and other agencies like BOI are going to support the economy with low interests, interest waivers, moratoriums etc.
“The banks will also have to grant moratorium to businesses. The good news is that such a period like this is often followed by a boom in productivity and new business initiatives if adequate measures are taken.”
A cursory look at the performance of the banks in the current financial year revealed that the ‘big five’ banks in Nigeria; First Bank, UBA, GTBank, Access Bank and Zenith Bank, under the nickname FUGAZ, generated a profit of N521.64 billion in their results for the nine months ended September 30, 2019, against N480.4 billion they achieved in the corresponding period in 2018.
An analysis of the numbers showed that Zenith Bank Plc led with the highest profitability and total assets, and ended the nine months with a profit after tax (PAT) of N150.7 billion, compared with N144.2 billion posted year earlier.
GTBank followed closely with a PAT of N146.9 billion, up from N142.2 billion.
UBA posted PAT of N81.6 billion, which is 32.2 per cent above the N61.7 billion it made in the corresponding period of 2018. FBN Holdings Plc ended the nine months with N51.74 billion, compared with N44.8 billion in 2018.
Access Bank Plc also reported a significantly improved performance for the nine months, reflecting the positive impact of its merger with former Diamond Bank Plc.
The bank posted a growth of 44 per cent in profit after tax (PAT) to N90.7 billion in 2019, up from N62.9 billion in the corresponding period of 2018.