High Interest Rate Will Worsen Nigerian Banks’ Woes - Fitch

Nigerian banks are likely to face
more challenges as the nation’s
benchmark interest rate
continues to rise, global credit
rating agency, Fitch Ratings, has
said. The Central bank of Nigeria’s
Monetary Policy Committee had
on Tuesday increased the
interest rate from 12 per cent to
14 per cent in a move to curb
inflation and strengthen the naira. The move has been widely
criticised by economists.
The CBN’s Monetary Policy Rate
(benchmark interest rate), which
hovered around six per cent
from 2001 to 2011, has risen steeply.
In a statement on Friday, Fitch
said, “Rising rates are likely to
put additional pressure on
banks’ asset quality. Almost all
lending is extended at floating rates and banks should be able
to reprice their loans quite
quickly but borrowers will face
more difficulties in servicing their
debts.
“Impaired loans are already high in the Nigerian banking sector,
where average non-performing
loan ratios reached 6.2 per cent
at end-March 2016, partly
reflecting the impact of currency
depreciation on businesses as well as higher oil-related
problem loans at some banks.”
Fitch expects loan growth
(excluding foreign-exchange
translation effects) to slow
during the second half of 2016 and into 2017.
Banks have already tightened
underwriting standards as
economic conditions in the
country worsen.
The nation’s Gross Domestic Product contracted by 0.4 per
cent year-on-year in the first
quarter of 2016 and Fitch
forecasts the GDP growth to fall
to 1.5 per cent in 2016.