Moody’s: Higher oil prices to moderate banks’ foreign currency risks

Moody’s Investors Service in a report published on Wednesday stated that the outlook for the Nigerian banking system remains stable as banks’ foreign currency liquidity risks moderate due to rising oil prices and a more liberal forex policy.

It rating agency stated this in a report titled: “Banking System Outlook -Nigeria; Liquidity risks have eased but earnings pressure and loan quality risks remain.”

It stated that despite the stabilisation in banks’ foreign currency funding and liquidity profiles, Moody’s expects bank earnings to come under pressure. It projected that capital metrics would also decline marginally over the 12 to 18 month outlook period.

In addition, asset quality was estimated to remain weak, adding that a further deterioration in loan performance would be marginal as operating conditions slowly improve.

Vice President and Senior Credit Officer, at Moody’s, Akin Majekodunmi said, “Operating conditions for the Nigeria’s banks will continue to gradually improve over the next 12 to 18 months, but remain challenging,”

He added: “Nigeria’s growth prospects remain vulnerable to global oil prices, as crude oil will remain the country largest export commodity and its main generator of foreign currency for the foreseeable future.”

Moody’s anticipated a recovery in Nigeria’s real GDP growth over the next two years, up from 0.8 per cent last year. This, is expected to boost lending to around 10 per cent after a 15.4 per cent contraction in 2017.

“Nigerian banks’ profitability will nevertheless decline on account of lower yields on government securities, as well as a likely reduction in income from derivatives. However, these pressures will be partially offset by a recovery in loan growth and transaction income from the expansion of digital platforms.

“Meanwhile, nonperforming loans and associated provisions in the banking system will increase marginally in a delayed response to sluggish economic growth experienced last year, and Moody’s expects them to range between 15.5 per cent and 18 per cent of gross loans over the outlook period,” it added.

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