People & MoneyUncategorized

Nigerian Banks Set For 7.6% of Total Credit Going Bad by Year End

Nigeria’s Gross Domestic Product (GDP) is likely to grow at less than 50 per cent the speed required by banks in 2021 to avert a potential soaring of unpaid loans, Bloomberg reported Wednesday.

The International Monetary Fund (IMF) on Tuesday revised Nigeria’s economic growth rate forecast for this year to -4.3 per cent from a prediction in April that Africa’s largest economy would shrink by 5.4 % in 2020. But this still makes Nigeria the fourth worst-performing nation of the countries assessed by the Bretton Woods institution in sub-Sahara Africa.

Nigerian lenders have restructured almost 40 percent of their loan portfolios in order to prevent loans which borrowers are having difficulties servicing from being booked as nonperforming.

Also Read: COVID-19: Nigerian Economy Loses Over N1.4 Trillion in One Year – PwC Report

These restructured loans would be more difficult to pay if the economy enters a recession as is expected after the Nigerian Bureau of Statistics releases GDP figures for the third quarter.

“There’s no real sense the economy will bounce back to 4% to 5% growth. We expect banks’ credit quality to remain under pressure,” said Ronak Gadhia, director for sub-Saharan African banks research EFG-Hermes.

Nigeria’s GDP will possibly tighten by 4.3% this year, the IMF said, as a lockdown aimed at flattening the curve of coronavirus spread, weaker oil prices and sweeping dollar shortages impair output. GDP last grew by over 3% in 2014.

Also Read: IMF says Nigeria’s Economic Growth to Decline by 4.3% in 2020

The Central Bank of Nigeria foresees that roughly two-thirds of credit in the economy will be restructured this year to enable borrowers grapple with the economic fallout from the pandemic. EFG sees non-performing loans climbing to 7.6% of total credit by year end as the economy worsens, lifting impairment charges, Gadhia said.

The Cairo-based brokerage envisages Nigeria’s GDP will advance by 1% to 2% in 2021 “which is very low, and doesn’t help the banks from an asset-quality perspective,” the analyst said. Banks earnings per share could depreciate by 65% in 2020, Gadhia added.

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