Fitch: Nigerian Banks, Others to Withstand Commodities’ Price Fall

Central Bank of Nigeria

Obinna Chima

The growth recorded by Nigerian banks and other banks in sub-Saharan Africa should provide favourable conditions for the financial institutions in the region in 2015 despite the decline in commodity prices, Fitch Ratings has said.

In addition, the agency specifically pointed out that in Nigeria, buoyant non-oil and services sectors, plus private consumption are holding up credit demand.

Loan growth in Nigeria climbed to 25 per cent in 2014. According to Fitch, there is strong demand for new lending in Nigeria.

The global rating agency noted in a statement yesterday that credit growth was set to expand because of the strong demand for infrastructure financing and the buoyant private sector.

These, according to Fitch, are likely to offset the threats from weaker commodity prices and heightened political risk and uncertainty.
“Even banks in oil exporting countries, where low oil prices might be expected to trigger loan contraction, are experiencing continued credit demand. In Angola, public sector investment remains a priority and banks are finding new takers for loans in government entities and ministries.

“Sub-Saharan banks tend to be awash with deposits; loan/deposit ratios for banking sectors in Fitch-rated countries average 78 per cent, which is low by international standards. This reflects both limited opportunities for profitable lending and asset structures that tend to be heavily invested in high yielding government securities, rather than loans.

“Despite plentiful deposits, credit growth can still be constrained because short-term deposits are not well suited to funding longer-term loans. Managing liquidity gaps is a challenge but the region's banks have long worked within these constraints to successfully grow their loan books,” it added.

Few sub-Saharan banks, other than in Nigeria and South Africa, issue medium-term bonds, even on the domestic markets.