* Fitch predicts 20% hit to Nigerian bank revenues this yr * Central bank measures exacerbate lending, FX scarcity woes * Economic system faces COVID-19, oil price shock double whammy By Chijioke Ohuocha and Karin Strohecker ABUJA/LONDON, July 28 (Reuters) – Nigeria’s banks are anticipated to take an enormous hit to revenues and face rising borrowing prices this yr as central bank measures to assist the naira forex squeeze lenders already hit by fallout from coronavirus and the oil price shock, analysts say. Banks in Africa’s largest financial system – a mainstay for fairness and glued revenue frontier market traders – have realized to navigate challenges in a rustic that has lengthy struggled with greenback shortages and a number of exchange charges. However the prospect of anaemic progress, dwindling oil revenues, declining remittances and greenback shortages exacerbated by the central bank’s newest motion geared toward curbing naira liquidity and forex hypothesis are placing stress on lending by banks and the standard of current belongings. The central bank has sucked as a lot as 900 billion naira out of the native banking system since elevating the cash reserve ratio (CRR) by 5% to 27.5% in January, in line with analysts’ calculations. “General sentiment in the markets is that CRR debits are carried out quite close to FX auctions to prevent the banks from presenting large ticket FX demands at auctions,” stated Nkemdilim Nwadialor at Tellimer Capital. These debits additionally hamper wider lending, going towards central bank measures of reducing banks’ loan to deposit ratios, she stated. Central bank information confirmed credit score to the non-public sector in April dropped by practically two-thirds from end-2019. “Banks are dealing with slow growth, fall in lending, a lack of forex in the market and asset quality issues,” stated Mahin Dissanayake, senior director EMEA bank scores at Fitch. He expects banks’ revenues to drop a minimum of 20% this yr, although he didn’t anticipate any to make a loss. Some banks have already indicated they anticipate a success. In April, mid-tier lender Constancy Bank warned 2020 earnings would drop by 15%. Bankers stated lenders had been counting on current prospects to climate the storm as new lending seemed dangerous with the financial system anticipated to tip again into recession. Fitch predicts impaired loan ratios will rise sharply in 2020 with Nigerian banks essentially the most uncovered to emphasize within the oil sector in comparison with their friends in rising markets elsewhere. Nwadialor at Tellimer anticipated a “significant pick-up” of non-performing loan ratios from 6.6% within the first quarter to a mean of 10% for the total yr – double the central bank’s benchmark. Some banks have already introduced plans to deal with this. Mid-tier lender FCMB plans to finish a restructuring of half its loan guide on the finish of April. A central bank coverage maker predicted final month that banks would restructure over a 3rd of loans. Moody’s warned in a notice that greenback shortages would intensify over the subsequent 12-18 months – a interval when 49% of banks’ $7 billion foreign-currency borrowing matures, leaving them susceptible. Yields on greenback bonds issued by Nigerian banks – a proxy for borrowing prices – have retreated from the peaks scaled within the midst of the oil and coronavirus rout. But for lenders akin to Zenith Bank, Constancy Bank or Entry Bank, the yields are nonetheless a minimum of double the extent from mid-March. “Foreign currency borrowing will be more expensive at a time when banks must refinance almost half of their borrowings,” Moody’s analysts stated. Reporting by Chijioke Ohuocha in Abuja and Karin Strohecker in
Further reporting by Alexis Akwagyiram in Lagos, enhancing by
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