A new report has said that Nigeria’s banking industry is experiencing a “full-blown financial crisis” with four lenders already on the danger list.
According to Arqaam Capital, the crisis is as a result of failed fiscal and monetary policies, which have prompted the current credit crunch.
Unity Bank Plc and Skye Bank Plc are close to being insolvent, while FBN Holdings Plc and Sterling Bank Plc “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 to Bloomberg on Monday.
They said that capital ratios of the affected banks are set to worsen because of currency depreciation and souring loans.
In July, the Central Bank of Nigeria (CBN) replaced the management of Skye after the lender breached liquidity thresholds, causing 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 now battling with Naira devaluation, 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-capitalized banks” with a deficit of as much as N1 trillion ($3.2 billion) in the financial system, Meijer and Sleiman said.
The report said a stress test identified FBN as the most under- capitalized lender with Unity Bank plc, Diamond Bank Plc, Skye Bank plc, FCMB Group Plc, Sterling Bank plc and Fidelity Bank Plc also showing deficits if they were to fully provide for non-performing loans.
Moody’s Investors Service said on Monday that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown.
According to the CBN, on its website, Moody’s expects non-performing loans to increase to about 12 percent over the next 12 months. The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015.
The five largest lenders, which together hold 57 percent of the country’s banking assets, “are able to absorb all losses under our severe stress scenario,” Moody’s said. Guaranty Trust Bank Plc showed “the greatest resilience” and the other four banks were Zenith Bank Plc, Access Bank Plc, United Bank for Africa Plc and First Bank of Nigeria Ltd., the ratings company said.
According to Arqaam, FBN, Skye, Sterling, Stanbic IBTC Holdings Plc, Unity and Ecobank Transnational Inc are rated as sell while Zenith, Access and United Bank are rated buy.
Diamond, Fidelity, Wema Bank Plc, FCMB Group Plc, United Bank and Skye recorded declines, with Zenith ranking as the most traded stock among the 171 securities on the Nigerian Stock Exchange All Share Index.
Diamond Bank fell 5.5 percent, Fidelity dropped 4.3 percent, Skye Bank slid 4.6 percent and Unity slipped 4.1 percent. Union Bank Nigeria Plc, which is partly owned by London-based Atlas Mara Ltd., was the second-biggest gainer, rising 5 percent.