The balance sheets are battered

GLOBAL ratings agency S&P yesterday warned in a report that the outlook for Nigerian banks was negative this year.

It said the Nigerian banking sector faced another difficult year as continued low oil prices, devaluation of the Nigerian currency, a shortage of US dollars and the 2016 economic recession were battering banks’ domestic balance sheets.

“We forecast that the 10 banks that we rate in Nigeria will suffer increased credit losses of 3.5 percent to 4 percent in 2017 in aggregate, after an anticipated 3 percent in 2016.

Shelter

“We believe domestic banks will take shelter by attempting to preserve liquidity and capitalisation through slowing their growth and cutting costs, but the likelihood of severe banking sector stress is increasing,” it said.

S&P Global Ratings said the major risk facing the banks was the ongoing shortage of dollars, which had caused delays in the payment of some off-balance-sheet facilities.

But recently the Central Bank of Nigeria had provided additional dollars to the banks and to private individuals at a rate up to 20 percent higher than the official rate.

“However, in the event of official devaluation, banks’ asset quality and capitalisation would be further constrained.

“We believe at least three banks are within 150 basis points of their minimum capital adequacy ratio due to the 2016 devaluation of the naira and weak earnings, and further losses or devaluation could trigger an element of regulatory forbearance within the sector.”

The report said it was therefore likely that a few banks would either actively shrink their balance sheets or seek capital injections in 2017, which could prove difficult in the current market and economic environment.