Nigerian Banks to See Rising Loan Losses Next Year, S&P Says

Nigerian banks may report higher loan losses from next year as they increase foreign-exchange lending and extend more credit to companies outside the oil industry, according to a Standard & Poor’s analyst.

Banks in Africa’s top oil producer are expected to see loans and deposits rise 20 percent to 30 percent this year, said Matthew Pirnie, a Johannesburg-based analyst at S&P. That compares with credit growth of about 12 percent last year as lenders cut non-performing loan ratios, he said.

“We expect increased losses in 2014 to 2015,” Pirnie said in an e-mailed reply to questions yesterday. “We tend to see quite short credit cycles in Nigeria.”

Nigerian banks are returning to health after a debt crisis in 2008 and 2009 triggered by loans given to stock market speculators. The Central Bank of Nigeria, led by Governor Lamido Sanusi, fired eight chief executives of the country’s 24 banks and the government set up the Asset Management Corp. of Nigeria, or Amcon, to buy the debts and stabilize the banking industry.

S&P rates six of the nation’s lenders, including the largest by market value, Guaranty Trust Bank Plc, which yesterday reported a 69 percent jump in 2012 profit. Zenith Bank Plc, the third-largest and also rated BB- by S&P, said full-year profit more than doubled to 100.6 billion naira ($635 million).

Narrow Group

Stronger earnings helped boost the Bloomberg NSE Banking Index, which tracks Nigeria’s 10 biggest banks by market value. The measure, which climbed 2 percent to 431.56 at 11:53 a.m. in Lagos, the commercial capital, has advanced 27 percent this year compared with the 24 percent gain in the Nigerian Stock Exchange All-Share Index.

Loan book diversification is happening “slowly” as there are unknown risks to lending in areas such as agriculture, said Pirnie.

“Lending is still to a narrow group of large corporates with banks holding many of the same names in their portfolios,” he said.

The West African nation’s economy is forecast to expand more than 7 percent this year, compared with 6.3 percent last year, the International Monetary Fund said in a March 28 statement. Amcon’s cleanup, supported by political stability and economic growth, will spur expansion of the country’s banking industry this year, S&P said in a March 13 report.

Benchmark interest rates, held by the central bank at a record high since October 2011, have helped Nigerian lenders make money, said Pirnie.

Interest Arbitrage

“Nigerian banks take low-cost short-term deposits and place them into higher yielding loans or government bonds,” he said. “As interest rates have been high, so have yields on government bonds, allowing for a simple interest arbitrage opportunity.”

The central bank’s Monetary Policy Committee left the key rate at 12 percent for a ninth meeting on March 19 to help bolster the naira and keep inflation below 10 percent. Policy makers have so far rejected calls from businesses and the government to lower borrowing costs.

Nigeria will probably see further acquisitions as Amcon plans to sell three nationalized lenders and overseas banks look to enter the market, Pirnie said.

Amcon plans to sell Keystone Bank Ltd., Mainstreet Bank Ltd. and Enterprise Bank Ltd. before the end of the first quarter of next year, Kayode Lambo, a spokesman for the company, said yesterday by phone from Lagos. It is awaiting information on how to proceed from sale advisers Citigroup Inc. and Renaissance Capital, he said.