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Non-oil sectors will boost bank lending in Nigeria – Fitch

By on April 25, 2015

Global rating agency, Fitch Ratings, says buoyant non-oil and service sectors as well as private consumption are boosting demand for credit among Nigerian banks.

As a result, the agency said it expected loan growth in Nigerian and other sub-Saharan African banks in 2015.

According to Fitch, economic growth in the SSA will provide favourable conditions for the region’s lenders in 2015, despite the decline in commodity prices.

A statement by the rating agency on Thursday said that in the SSA, “credit growth is set to expand because there is strong demand for infrastructure financing and the private sector is buoyant.

“These are likely to offset the threats from weaker commodity prices and heightened political risk and uncertainty.”

Banks in oil-exporting countries, where low oil prices may be expected to trigger loan contraction, are experiencing continued credit demand, according to Fitch.

The statement read, “In Nigeria, buoyant non-oil and services sectors, plus private consumption, are holding up credit demand. Loan growth reached 25 per cent in 2014. In Angola, public sector investment remains a priority and banks are finding new takers for loans in government entities and ministries. Sub-Saharan banks tend to be awash with deposits; loan/deposit ratios for banking sectors in the Fitch-rated countries average 78 per cent, which is low by international standards.

“This reflects both limited opportunities for profitable lending and asset structures that tend to be heavily invested in high yielding government securities, rather than loans. Despite plentiful deposits, credit growth can still be constrained because short-term deposits are not well suited to funding longer-term loans.“

The global rating agency stated that managing liquidity gaps was a challenge but the region’s banks had long worked within these constraints to successfully grow their loan books.

It noted that few sub-Saharan banks, other than in Nigeria and South Africa, had issued medium-term bonds, even on the domestic markets.

Fitch said, “South Africa is a notable exception for loan growth. We forecast that the country’s banks will expand credit only modestly, reflecting a weakened economy, infrastructure investment delays and the overhang from 2014’s mining strikes. Demand for retail and small business lending is healthy but banks are more reluctant to lend to these segments given an increase in impaired loans after a period of rapid expansion during 2009-2013.

“Credit expansion is one measure included in Fitch’s macro-prudential indicators, specifically designed to highlight heightened potential banking sector risks. The MPI scores of ‘3’, which highlight the greatest systemic risk potential, are assigned to relatively few sub-Saharan countries, namely Angola, Ethiopia and Ghana. The MPI ‘2’ scores are assigned to Cote d’Ivoire, Congo, Kenya, Lesotho and Mozambique. Both South Africa, where loan growth expectations are low, and Nigeria, where demand for new lending is strong, are scored MPI ‘1’.”

 

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