Banks’earnings to improve – Fitch

Fitch Ratings, one of the world’s foremost rating agencies, says it expects the performance of most of the Fitch-rated Nigerian banks to improve this year as a result of lower  charges and funding costs.

Over the medium-term, higher levels of credit growth, non-interest income and a greater cost management focus may support banks’ earnings as the competition for lower-cost deposits intensifies, Fitch said  in a newly published special report according  to Reuters News.

“The banks’  2011 half-year results show a trend of improved, more stable earnings due to significantly lower impairment charges compared with 2009-2010. H111 results reflect some pent-up demand after prolonged uncertainty with cost management expected to take on increased focus,” the rating agency said.

It noted that the asset quality indicators of Nigerian banks benefited from the sale of non-performing loans (NPLs) to the Asset Management Corporation of Nigeria (AMCON) last year and first-half of this year. In addition, banks proactively used restructuring as a risk management tool to offset the negative impact of further NPL inflows on asset quality indicators.

Besides, the rating agency observed that interbank liquidity tightened following the expiry of the Central Bank of Nigeria’s (CBN) interbank guarantee on September 30, which has been in place since the CBN’s special audit examination in 2009.
However, the CBN has extended the guarantee to December 31, this year for the rescued banks.

Fitch said it believes that Nigerian banks’ Tier 1 capital ratio may continue to be eroded by asset growth and low internal capital generation due to generous dividend policies.

On the difficulties of raising fresh capital after the banking crisis, Fitch said it expects banks that hold higher levels of Tier 1 capital to be better placed to grow. “We believe that higher levels of capital are appropriate for Nigerian banks because of the difficult local operating environment and credit concentrations as well as low impairment coverage ratios in the case of certain banks,” Fitch said.

Nation

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