Nigerian banking in ‘full blown financial crisis’

Johannesburg - Nigeria’s banking industry is experiencing a “full blown financial crisis” as failed fiscal and monetary policies lead to a credit crunch, according to Arqaam Capital.

Unity Bank and Skye Bank are close to being insolvent, while lenders FBN Holdings and Sterling Bank “will need a dilutive capital hike,” Jaap Meijer and Tarek Sleiman, analysts at the Dubai-based investment bank and brokerage, said in an e-mailed note on Monday.

Banks’ capital ratios are set to worsen because of currency depreciation and souring loans, they said. Calls to Unity and Skye Bank weren’t immediately returned.

The central bank in July replaced the management of Skye after the lender breached liquidity thresholds, spurring concerns about the health of small and medium sized lenders, and reviving memories of bank rescues by the government after the financial crisis in 2009.

Nigerian banks are grappling with a devaluation of the currency, rising bad loans and an oil-dependent economy that’s set to record its first annual contraction in more than two decades.

“Our acid test reveals seven under capitalised banks” with a deficit of as much as 1 trillion naira in the financial system, Meijer and Sleiman said. A stress test identified FBN as the most under capitalised lender with Unity, Diamond Bank, Skye, FCMB, Sterling and Fidelity Bank also showing deficits if they were to fully provide for non-performing loans, according to Arqaam.

Common challenges

Moody’s Investors Service said on Monday that Nigeria’s five biggest banks share common credit challenges related to the slowdown in the country’s oil and gas dependent economy.

Moody’s expects non-performing loans to increase to about 12% over the next 12 months. The ratio of non-performing loans to total credit rose to 11.7% at the end of June from 5.3% at the end of 2015, the Abuja-based Central Bank of Nigeria, which requires banks to keep the measure below 5%, said in a report on its website.

Arqaam rates FBN, Skye, Sterling Stanbic IBTC, Unity and Ecobank Transnational as sell, according to the report. Zenith Bank, Access Bank and United Bank for Africa are rated buy.

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