RegionsAfricaReport Warns of Challenges for Nigerian Banks, Despite AMCON Support

Report Warns of Challenges for Nigerian Banks, Despite AMCON Support

Recent rapid credit growth in the Nigerian banking sector may give rise to weakened asset quality and higher impairment charges if left unchecked, according to a special report by Fitch Ratings.

The credit ratings agency (CRA) said in the report, titled ‘Nigerian Banking Sector: Rapid Credit Growth Returns’, that improved efficiency will be a key differentiator for the more successful banks and will support earnings growth and ultimately contribute to better internal capital generation.

“There was a marked improvement in banks’ asset quality during 2011 following the sale of problem loans to the Asset Management Corporation of Nigeria (AMCON),” said Denzil De Bie, a director in Fitch’s financial institutions team. “However, rapid underlying credit growth of 30%-66% was evident in most of the Fitch-rated banks in 2011, which the agency considers will be a negative credit driver if it continues.

“Fitch considers that many Nigerian banks have thin levels of Fitch core capital, which are lower than is appropriate for Nigeria’s difficult operating environment. Sustainable Fitch core capital ratios will be a key rating driver for any future positive action on the banks’ viability ratings.”

Fitch currently allocates viability ratings of b to the majority of Nigerian banks.

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