Outlook for banks still negative on weakening government support – Moody’s

The outlook for Nigerian banking system is still negative. Moody’s Investors Service said in a report released yesterday that, weakening government support capacity and expected increase in asset risk are major factors.

The report said, government support is expected to remain weak in the next 12 to 18 months.

“Nigerian banks’ loan quality will weaken in 2021 as coronavirus support measures implemented by the government and central bank last year, including the loan repayment holiday, are unwound,” says Peter Mushangwe, analyst at Moody’s and the co-author of the report.

“The negative outlook also captures the weakening capacity of the government of Nigeria to support the country’s banks in case of need, as reflected by the negative outlook on the government’s credit rating; on the other hand, Nigerian banks hold robust capital buffers and foreign-currency shortages will ease.”

Banks in Nigeria face higher asset quality risks as coronavirus support measures are withdrawn amid large single-name and sectoral concentrations and as banks hold a large volume of foreign currency loans.

Banks balance sheets are also burdened by large volumes of Stage 2 loans. The report estimates that between 40 per cent to 45 per cent of banking loans were restructured in 2020, easing pressure on borrowers following the outbreak of the pandemic.

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