In its latest report, Fitch Ratings has projected that Nigerian banks will face an uptick in non-performing loans (NPLs) in 2024, as inflation and high-interest rates continue to weigh on the country’s economy.
This development is likely to challenge the financial health of the sector, even as Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) remains affirmed at ‘B-’ with a Positive Outlook.
The report notes that the proportion of loan assets within Nigeria’s banking sector has remained relatively modest, accounting for only 35 per cent of total assets by the end of 2023.
Fitch commented that this lower loan volume could buffer banks against significant instability, though the agency foresees an uptick in non-performing loans due to economic pressures.
“Fitch expects the banking sector’s regulatory non-performing loans (end-1Q24: 5.1 per cent) to increase in 2024 due to high inflation and interest rates,” the report stated.
The Central Bank of Nigeria (CBN) has also introduced heightened capital requirements, set to be fully enforced by the end of the first quarter of 2026, as a way to ensure resilience within the sector.
This policy is compounded by the recent amendment of the 2020 Finance Act, which levied a 70 per cent windfall tax on banks’ foreign exchange gains in 2023 and first quarter of 2024.
Fitch noted that these requirements are unlikely to cause capital adequacy ratio breaches, though they will certainly test banks’ profit margins in the near term.
