Nigerian banking industry is experiencing a “full-blown financial crisis” as failed fiscal and monetary policies lead to a credit crunch, Arqaam Capital told Bloomberg.
Arqaam Capital said two Banks are close to being insolvent, while two other lenders “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 on yesterday. Capital ratios are set to worsen because of currency depreciation and souring loans, they said. Calls to one of the banks were not immediately returned and the other did not reply to questions.
The Central Bank of Nigeria (CBN) in July replaced the management of Skye after the lender breached liquidity thresholds, spurring 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 grappling with a devaluation of the naira, 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 N1.0 trillion ($3.2 billion) in the financial system, Meijer and Sleiman said. A stress test identified one of the oldest banks as the most under capitalized lender with six others also showing deficits if they were to fully provide for non-performing loans, according to Arqaam.
“Our bank is strong,” Ikechukwu Mike Omeife, a spokesman for Diamond Bank, said by phone from Lagos. “Our capital-adequacy ratio and non-performing loans are within the statutory requirements.”
Moody’s Investors Service said on Monday that Nigeria’s five biggest banks share common credit challenges related to the economic slowdown. Moody’s expects non-performing loans to increase to about 12 per cent over the next 12 months. The ratio of non-performing loans to total credit rose to 11.7 per cent at the end of June from 5.3 per cent at the end of 2015, the based CBN, which requires banks keep the measure below five per cent, said in a report on its website.
The five largest lenders, which together hold 57 per cent 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.
Arqaam rates FBN, Skye, Sterling, Stanbic IBTC Holdings Plc, Unity and Ecobank Transnational Inc. as sell, according to the analysts’ report. Zenith, Access and United Bank are rated buy.