Nigerian Banks Still Cautious About Loan Disbursement

• Lending among major lenders drops to N11.67tn
• Moody’s downgrades eight banks

Obinna Chima

As Nigerian banks continue to contend with high non-performing loans and more attractive yields from government securities, they have continued to remain averse to giving out fresh loans to their customers, a review of their financial results have shown.

The nine months unaudited results for the period ended September 30, 2017 of nine commercial banks compiled by THISDAY, showed that their combined loans and advances stood at N11.665 trillion, lower than N11.959 trillion as of December 2016.
The bank results reviewed by THISDAY were those of Zenith Bank, Guaranty Trust Bank (GTBank), United Bank for Africa (UBA), FBN Holdings, Diamond Bank, Access Bank, Fidelity Bank, Stanbic IBTC and Sterling Bank.

Against the backdrop of low oil prices, dwindling oil revenue, foreign exchange scarcity and a crippling recession, the last two years saw a significant deterioration in the banks’ risk assets.
Owing to this, banking sector NPLs climbed to as high as 15 per cent, leading to a slow down in loans disbursement by Nigerian lenders.

This clearly manifested in some of the banks’ results for the nine months ending last September.
For instance, while Zenith Bank’s loans and advances dropped to N2.156 trillion as of September this year, from N2.289 trillion as at December 2016, GTBank also cut down its loans to customers from N1.589 trillion as of December 2016, to N1.428 trillion as of September 30, 2017.

Diamond Bank’s loans to customers also dropped to N976 billion in the period under review from N995 billion as of December 2016, just as FBN Holdings’ loans and advances dropped to N2.043 trillion from N2.083 trillion as of December 2016.
Access Bank gave out a total of N1.777 trillion as loans and advances to customers by September ending 2017, lower than the N1.809 trillion as of December 2016.

On the other hand, UBA, Fidelity Bank, Stanbic and Sterling all reported a slight improvement in their loans and advances.
Nevertheless, figures from the nine banks showed that they recorded total customer deposits of N15.706 trillion at the end of September 2017, lower than the N15.722 trillion in the corresponding period in 2016.
Afrinvest Securities Limited, in its latest banking sector report, pointed out that Nigerian lenders have demonstrated resilience within the last two years amid macroeconomic challenges which weighed on credit expansion, asset quality and capital adequacy, to record largely positive results for the year.

It noted that the financial performance of the sector was principally affected by monetary policy decisions tied to the management of the foreign exchange market which had a ripple effect on earnings across the industry.
“Despite forward guidance of banks to keep credit expansion minimal in 2017, we believe that the exposure of pre-existing loans to ‘high risk sectors’ will continue to pressure asset quality in the year.
“However, we expect asset quality metrics to improve in 2017 against the backdrop of steps being taken to restructure loans to challenged sectors as well as some of the noticeable improvements in the general commerce and manufacturing sectors which have been buoyed by developments in the FX market.

“Although forward guidance from majority of the banks indicates the reluctance to extend credit, we believe that the any moves to unify the FX market will lead to a nominal expansion in loans, given the proportion of foreign currency loans.
“The depreciation in the domestic currency resulted in higher Risk Weighted Assets on the books of the banks. Hence, capital adequacy ratios of some of the banks fell towards threateningly low levels. Consequently, we expect such banks to approach the market in order to raise capital to shore up capital buffers,” it added.

Eight Banks Downgraded

In a related development, the recent downgrade of Nigeria’s long-term issuer and senior unsecured debt rating by Moody’s Investors Service, one of the leading global rating agencies, has as a consequence led to the downgrade of eight Nigerian banks by the ratings agency.

It also downgraded the long-term local and foreign currency issuer ratings of Bank of Industry (BoI).
Moody’s downgraded the long-term local currency deposit and issuer ratings of four Nigerian banks – Access Bank, GTBank, UBA and Zenith Bank – to ‘B2’ from ‘B1’, as well as that of the long-term local and foreign currency issuer rating of BoI.

Moody’s also downgraded from ‘B2’ to ‘B3’ the long-term foreign currency deposit ratings of Access, GTBank, UBA and Zenith, Union Bank of Nigeria, FirstBank of Nigeria Limited and Sterling Bank.
A statement obtained from the ratings agency’s website Sunday, showed that it also downgraded the baseline credit assessments (BCAs) of Zenith and GTBank to ‘b2’ from ‘b1.’
It explained that its rating action followed its downgrade of Nigeria’s government bond ratings to B2, with stable outlook, from B1, with stable outlook.

Furthermore, it stated that its action reflected government’s reduced capacity to provide support for Nigerian banks in times of stress and the banks’ significant holdings of government securities linking their credit profiles to that of the government.
“The decision to downgrade banks’ long-term foreign currency deposit ratings follows the downgrade of the relevant country ceiling for foreign currency deposits to B3 from B2,” it added.

According to Moody’s, “Access Bank and UBA’s long-term local currency deposit ratings and Bank of Industry’s long-term issuer ratings no longer benefit from a one-notch uplift from their b2 BCAs (or standalone credit profile, as is the case for Bank of Industry) as these are now at the same level as the government bond rating.
“The long-term local currency deposit ratings of Sterling, Union and FBN have been affirmed at B2, as their b3 BCAs continue benefiting from one notch of government support uplift.”

It also stated that the secondary driver of its rating action was the banks’ significant holdings of government securities, “which generally exceed 100 per cent of their core capital, linking their credit profile to that of the government”.
Moody’s explained: “In view of the correlation between sovereign and bank credit risk, the banks’ standalone credit profiles and ratings are constrained by the rating of the government.

“As a result, the BCAs for Zenith and GTBank have been downgraded to b2 from b1, in line with the downgrade of the government issuer rating, despite the resilient financial performance witnessed by both banks over the last 24 months.
“The BCAs of the other rated Nigerian banks have been affirmed as they already captured risks emanating from their sovereign exposures.”