Nigeria: Banking sector is struggling

Event

Several banks in Nigeria are facing growing financial difficulties (for example Heritage Bank and First Bank of Nigeria). As a reaction, the Central Bank of Nigeria (CBN) restated that the Nigerian banking sector remains resilient and stressed their determination to protect depositors and ensure soundness of the sector.

Impact on country risk

Difficulties in the banking sector are a result of the oil crisis and the economy’s first recession in more than two decades. Banks are affected through their exposure to the energy sector which represents about a quarter of their loans.

On the other hand, the economic contraction raised the ratio of non-performing loans to total credit (from 5.3% at the end of 2015 to 11.7% in June 2016). The depreciation of the naira also disenabled certain debtors to service foreign currency denominated loans and increased loan impairments.

Besides, Nigerian lenders have to deal with severe foreign exchange shortages in the market.

Moreover, this general gloomy environment complicates banks’ capacity to raise additional capital to maintain adequate capital buffers. Consequently, the Nigerian banking sector is experiencing higher liquidity and solvency risks.

Louise Van Cauwenbergh – Credendo Group