Bloomberg News

Nigerian Banks to See Increased Loan Losses Next Year, S&P Says

April 03, 2013

Nigerian banks may report increased loan losses from next year amid growth in lending, according to Standard & Poor’s.

Banks in Africa’s top oil producer are expected to see loans and deposits rise 20 percent to 30 percent this year helped by foreign exchange and non-oil industry lending, said Matthew Pirnie, a Johannesburg-based analyst at S&P. Lenders had “muted” credit growth last year of about 12 percent as they pushed down ratios of non-performing loans, he said.

Nigerian banks are returning to health after a debt crisis in 2008 and 2009 triggered by loans given to stock market speculators. The Central Bank of Nigeria, led by Governor Lamido Sanusi, fired eight chief executives of the country’s 24 banks and the government set up the Asset Management Corp. of Nigeria, or Amcon, to buy the debts and stabilize the banking industry.

“We expect increased losses in 2014 to 2015,” Pirnie said in an e-mailed reply to questions yesterday. “We tend to see quite short credit cycles in Nigeria.”

S&P rates six of the nation’s banks, which reported higher profits and loan growth last year. Guaranty Trust Bank Plc (GUARANTY), Nigeria’s largest lender by market value and rated BB- by S&P, said yesterday that profit for 2012 jumped 69 percent as loans and deposits grew. Zenith Bank Plc (ZENITHBA), the third-largest and also rated BB- by S&P, said profit for the year more than doubled to 100.6 billion naira ($635 million).

Narrow Group

Stronger earnings have helped spur the performance of the Bloomberg NSE Banking Index (NGSEB10), which tracks Nigeria’s 10 biggest banks by market value. The measure has advanced 25 percent this year compared with the 22 percent rise of the Nigerian Stock Exchange All-Share Index. (NGSEINDX)

Loan book diversification is happening “slowly” as there are unknown risks to lending in areas such as agriculture, said Pirnie. “Lending is still to a narrow group of large corporates with banks holding many of the same names in their portfolios,” he said.

The West African nation’s economy is forecast to expand more than 7 percent this year, compared with 6.3 percent last year, the International Monetary Fund said in a March 28 statement. Amcon’s cleanup, supported by political stability and economic growth, will spur expansion of the country’s banking industry this year, S&P said in a March 13 report.

Benchmark interest rates, held by the central bank at a record high since October 2011, have helped Nigerian lenders make money, said Pirnie.

Interest Arbitrage

“Nigerian banks take low-cost short-term deposits and place them into higher yielding loans or government bonds,” he said. “As interest rates have been high, so have yields on government bonds, allowing for a simple interest arbitrage opportunity.”

The central bank’s Monetary Policy Committee left the key rate at 12 percent for a ninth meeting on March 19 to help bolster the naira and keep inflation below 10 percent. Policy makers have so far rejected calls from businesses and the government to lower borrowing costs.

Nigeria will probably see further acquisitions as Amcon plans to sell three nationalized lenders and as overseas banks look to enter the country’s market, Pirnie said.

Amcon plans to sell the banks before the end of the first quarter next year, Kayode Lambo, a spokesman for the company, said yesterday by phone from Lagos, the commercial capital. It is awaiting some information from sale advisers Citigroup Inc. (C:US) and Renaissance Capital before deciding how to sell Keystone Bank Ltd., Mainstreet Bank Ltd. and Enterprise Bank Ltd., he said.

To contact the reporter on this story: Chris Kay in Abuja at ckay5@bloomberg.net

To contact the editor responsible for this story: Vernon Wessels at vwessels@bloomberg.net


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