Economic Cracks to Restrict Banks from Growing Loans -Analysts
Nigerian deposit money banks (DMBs) are expected to record a slowdown in loan growth in the financial year 2024 due to sustained performance-threatening macroeconomic issues facing the economy.
This expectation is in contrast to market development in the financial year 2023, details from CardinalStone Partners’ banking sector update show. Inflation has continued to accelerate while the local currency has weakened significantly. These have put pressure on the consumer economy, denting corporate performance with increased finance costs.
In its update, CardinalStone explained that banking sector credit assets have maintained consistent growth since financial year 2019 – with strong four year average growth recorded by Access Plc, Fidelity Bank, Stanbic IBTC, FBNH and Zenith Bank. In the first nine months of 2023, the United Bank for Africa Plc increased lending appetite as the Pan-African lender grew credit assets by 60.8%, according to the report posted by CardinalStone.
Zenith Bank’s credit asset growth printed 48% higher due to increased lending appetite as the lender increased its footprint in the retail segment. Stanbic IBTC also reported higher loans to customers with 46.4%year-to-date credit asset growth.
FCMB, Fidelity and FBNH also recorded strong growth in the period. In its outlook for the year, analysts at the investment firm said they noticed an increase in banks’ risk assets in nine months of financial year 2023 driven by a 38.7% surge in loans with organic component growth at about 15.0%.
According to the investment banking firm, the trend surpassed last year’s growth of 18.2% and the 5-year cumulative average growth rate (CAGR) of 14.6%. “This credit growth was largely propelled by the impact of currency devaluation on banks’ foreign currency loans. To our minds, 2024 is likely to be a year of correction for credit growth due to the sustained macroeconomic issues in the country”, analysts said.
CardinalStone said banks are likely to retain restrictive credit lending policies, targeting sectors and obligors that are relatively more creditworthy. Due to the devaluation of the naira in June 2023, the banking industry experienced credit migration.
The industry witnessed growth in stage 3 foreign currency loans, according to Fitch Ratings. At the end of the financial year 2022, Jaiz Bank recorded higher stage 3 loans, followed by Union Bank, Ecobank and Wema Bank. Naira Rises by 19% as Forex Market Pressures Ease
For Access Bank, FCMB, Fidelity Bank, Zenith, FBNH, UBA and Stanbic IBTC, the problem loans ratio was below 5% except for GTCO whose exposure to oil and gas kept its ratio at 5%. Projecting into 2024, CardinalStone revealed an expectation that loan growth would revert to a 4-year mean of 19.9%.
Analysis of bank asset quality measured by the ratio of non-performing loans (NPLs) to gross loans stood at 4.1 per cent at the end of June 2023, relative to 4.2 per cent in end-December 2022, and 5.0 per cent in end-June 2022, according to the Central Bank economic report.
The NPL ratio was within the 5.0 per cent prudential requirement, the report reads. The banking industry Liquidity Ratio (LR) rose by 9.2 percentage points to 62.2 per cent, compared with 53.0 per cent at the end of December 2022.
In 2024, local lenders are expected to adjust lending appetite to align with their asset quality target, analysts said in a chat. It was noted that the crack in the economy could impact lending into the real sector amidst sustained uncertainties. #Economic Cracks to Restrict Banks from Growing Loans -Analysts
