The outlook for Nigeria’s banking system remains stable, reflecting resilient capital buffers and stable deposit bases, and high asset risks should ease as the economy strengthens, Moody’s Investors Service said in a report published yesterday.
“Nigerian banks’ asset risk and profitability will remain key rating challenges, but we expect these challenges to gradually decline in 2020 as the economy picks up,” said Peter Mushangwe, Analyst at Moody’s. “Banks’ funding and liquidity profiles will remain stable thanks to solid deposit bases.”
Loan quality pressures will ease but remain banks’ main weakness. Nonperforming loans (NPLs) will decline to 7 per cent-8 per cent in the next 12-18 months from 11.7% at the end of 2018 – still a high level. Higher oil prices will constrain new NPL formation while high loan-loss reserves will allow banks to write off some of their bad debts. These credit positives will be moderated by lingering risks from high loan concentrations and high delinquency levels.
Moody’s expects Nigeria’s real GDP to expand 2.3 per cent in 2019 and 2.8 per cent in 2020, up from 1.9 per cent last year, but well below the level required to improve living standards. Lending growth will recover in the second half of the year following a contraction in 2018, but it will remain subdued and will not appreciably boost banking revenue.