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The Fitch Ratings, an European rating agency has said that the Nigerian banks are because of the tight monetary policy of the Central Bank of Nigeria supported by robust economic growth

|  By Anayo Ezugwu  |  Oct. 20, 2014 @ 01:00 GMT  |

THE Central Bank of Nigeria, CBN, tight monetary policy and new banking rules is attracting international recognition. The Fitch Ratings, an European rating agency, has giving Nigerian banks clean bill of health. The rating agency, which announced its rating on its website, on Wednesday, October 8, said that the rating was supported by continuing robust economic growth.

Fitch said it expected banks’ performance and growth to moderate over the next 18 months due to CBN’s actions aimed at protecting the economy and the banking system. “The CBN’s stance also shifted towards protecting the consumer through its revised rules on banking charges introduced in 2013. All these moves, however, led to weaker profitability and stemmed credit growth in first half of 2014, a trend that is likely to continue into 2015. All Fitch-rated Nigerian banks were profitable in 2013 and first half of 2014 but saw performance slip,” the agency said.

Fitch, however, said there were a few outliers, typically the smaller banks, which outperformed the sector. The agency said earnings pressure was exacerbated by high operating costs at most banks due to a higher Asset Management Corporation of Nigeria, AMCON, levy and network expansion strategies. It also added that banks were now seeing some asset quality deterioration with rising absolute non-profit loans, NPLs that reflected fast loan growth since 2011.

Fitch said most banks’ NPL ratios remained below the five percent prescribed by the CBN but added that could be unsustainable in the long-run. It said that banks were also seeing moderate liquidity pressure with rising loans and deposit ratios. According to the agency, several banks had successfully tapped the euro bond market to raise longer-term USD funding to meet the strong demand for USD loans from major corporate organisations. This, it also said, could expose the banks to foreign exchange related risks.

“We expect bank capitalisation to come under pressure due to Basel II implementation in 2014 and proposed new regulatory capital computation rules. As a result, Fitch believes regulatory total capital adequacy ratios could fall between 200bps-300bps this year. Most Fitch-rated banks report Fitch core capital, FCC, and Basel I regulatory capital ratios in excess of 20 per cent which is considered a comfortable level given the risks inherent in Nigeria.”

Fitch said the sovereign support drove most Nigerian banks’ issuer default ratings, IDR. It also said that out of nine Nigerian banks rated by Fitch on the international scale, six had long-term IDRs driven by potential state support. The agency added that the banks included First Bank of Nigeria, United Bank for Africa, Diamond Bank, Union Bank, Fidelity Bank and First City Monument Bank.

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