Africa Press-Nigeria:<\/p>\n
The volume of stage two loans could be a threat to the banking industry\u2019s asset quality and future profitability even as the Central Bank of Nigeria (CBN)\u2019s measures to support the naira currency could squeeze financial institutions already hit by fallout from coronavirus and the oil price shock.<\/p>\n
This was the view of Agusto & Co. Limited, in its recently released its flagship 2020 Banking Industry Report. According to the report, approximately 23 per cent of the Industry\u2019s gross loans and advances was classified in the stage two category as at 31 December 2019, according to the International Financial Reporting Standard (IFRS) 9.<\/p>\n
The report stated that four out of the twenty-four banks covered in the report had stage two loans to gross loans ratios above the 23 per cent Industry\u2019s average. Stage two loans primarily comprise exposures with an increase in the associated credit risk compared to when the loan was disbursed.<\/p>\n
The report said, \u2018following the forbearance granted by the Central Bank of Nigeria (CBN) in March 2020, permitting banks to restructure loans to businesses that have been adversely impacted by the novel COVID-19 pandemic, the banking industry had restructured over N7.8 trillion (almost half) of the loan portfolio as at June 2020, according to the CBN.<\/p>\n
\u2018While the forbearance is expected to keep the industry\u2019s impaired loan ratio, which stood at 7.6 per cent as at 31 December 2019, at bay in the short term, Agusto & Co. is concerned about the performance of these affected loans, given that the coronavirus pandemic is yet to be curtailed and a second wave may be looming. A further slowdown in economic activities and a total lockdown may worsen an already bad situation.\u2019<\/p>\n
Furthermore, the research house and rating institution said it is projecting a 6 per cent GDP contraction in 2020 while acknowledging that there is likely to be an extension of the forbearance period in the event that the pandemic lingers.<\/p>\n
\u2018We expect a rise in the impaired loan ratio of the banking industry in the medium term. Our expectations are also driven by the regulatory-induced growth in the loan book driven by the minimum loan-to-deposit ratio (LDR) policy, with sanctions to banks for non-compliance through additional CRR debits.<\/p>\n
\u2018Agusto & Co. believes that banks should not be forced to lend as this may encourage weaker risk management practices. Furthermore, the foreign currency component of these restructured loans, largely in the oil and gas and power sectors, bloat the exposures in the likely event of a further devaluation of the domestic currency,\u2019 they said.<\/p>\n
Daily Sun learnt that some banks have already indicated they expect a hit on their revenue. On Tuesday, Fitch predicted impaired loan ratios will rise sharply in 2020 with Nigerian banks the most exposed to stress in the oil sector compared to their peers in emerging markets elsewhere.<\/p>\n","protected":false},"excerpt":{"rendered":"
Africa Press-Nigeria: The volume of stage two loans could be a threat to the banking industry\u2019s asset quality and future profitability even as the Central Bank of Nigeria (CBN)\u2019s measures to support the naira currency could squeeze financial institutions already hit by fallout from coronavirus and the oil price shock. This was the view of […]<\/p>\n","protected":false},"author":62,"featured_media":3212,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,15],"tags":[503,1451],"class_list":["post-27995","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-all-news","category-economy","tag-cbn","tag-covid-19"],"yoast_head":"\n