Stakeholders in the Nigerian banking sector have raised concerns that perceived “unorthodox monetary policy” moves of the Central Bank of Nigeria, CBN, to Foreign Exchange, FOREX liquidity issues, and the negative impacts of the COVID-19 pandemic are some of the main issues threatening their investments at the moment.
These concerns were raised by the representative of some of the country’s top banks; Zenith Bank Plc, FBN Holdings Plc, United Bank for Africa Plc, Guaranty Trust Bank Plc, and Stanbic IBTC Holdings Plc who recently attended Standard Chartered Bank’s 2020 Africa Investor’s Conference, AIC.
To the banks’ stakeholders, the negative impacts of CBN’s constant CRR debits, the issue of naira’s liquidity management gives room for concern.
They are also worried about FX liquidity (or the lack thereof), as well as the exchange rate unification at CBN’s different windows. They also wanted to know when the CBN will resume dollar sales to foreign portfolio investors in the Importers and Exporters I&E window?
Lastly, banks’ stakeholders are worried about COVID-19 and its impacts on earnings outlook, loan restructuring, and asset quality.
According to an executive summary of the conference which was sighted by The New Diplomat, banks’ stakeholders are especially worried about the issues.
“Banks are more concerned about the arbitrary nature and lack of understanding of the CRR debits as it makes it difficult for us to plan. Most are increasing steps to reduce balances with the CBN to limit debits.
According to the CBN, Cash Reserve Ratio, CRR balances with the CBN currently stand at N10tn, 22% of sector assets, and 50% of sector deposits. This is negative for Net Interest Margin (NIM), but funding costs have also declined, dampening the impact. Most of the banks have presented loans to the CBN for restructuring but are still engaging with clients.
Also, loans presented by the sector for restructuring account for 32.9% of total loans, implying an overall weakness in sector asset quality, which we will likely not see in asset quality deterioration by FY20e given the regulatory forbearance.
Sector Non-Performance Loan, NPL ratio currently stands at 6.6% vs. 11% in April 2019. Banks continue to maintain their position of following strict credit processes to drive credit growth, and not grow loans aggressively due to pressure from the loan-to-deposit ratio (LDR) minimum lending policy of the regulator.
The improvement in oil prices has also reduced the concerns of asset quality deterioration in oil and gas exposure. Obligors in the sector have a breakeven cost price at the USD30/bbl level. Some banks expect further devaluation in the currency at the official window, given the depressed FX revenue outlook from
Lower oil prices, but acknowledge the backward integration drive of the government to improve corporates’ sourcing of raw materials locally to reduce pressure on FX due to imports” the executive summary read in part.