Fitch noted
that substantial government-related FC deposits are exempted from reserve
requirements and have already been withdrawn from the system after the
government ordered all public-sector deposits to be moved from commercial banks
into the centralised Treasury Single Account (TSA) earlier this month.
Nigeria’s
Monetary Committee reduced mandatory reserve requirements on all local-currency
(LC) deposits to 25 per cent from 31 per cent last week in the hope that this
might ease liquidity pressure, stimulate new lending and boost economic growth.
Fitch
stated: “This should provide some additional LC
liquidity into the banking system but around N1.3trillion (USD6.5billion) of
deposits were sucked out of the banks in September, reflecting transfers to the
TSA. Public-sector deposits traditionally account for around 10 per cent of
total banking sector deposits. Lower reserve requirements will not offset the
tighter FC liquidity at Nigeria’s banks. A currency split of public-sector
deposits is not disclosed but in our opinion, FC deposits are substantial, held
up by oil-related deposits.
“The
centralization of public-sector and government-related FC deposits at the TSA
has made it increasingly difficult for commercial banks to meet customer demand
for FC. FC availability was already strained in 2015 due to falling oil
revenues, central bank action to defend naira depreciation and heightened
negative investor sentiment towards emerging markets. Warnings throughout the
year that JP Morgan intended to remove Nigeria from its Emerging Markets index,
which occurred in mid-September, also triggered heavy FC outflows as investors
sold Nigerian securities.”
Nigerian securities
“Viability Ratings assigned to Nigeria’s banks, all in the ‘b’
category, already reflect a wide range of weaknesses, including the
increasingly strained FC liquidity position. Our sector outlook for Nigerian
banks remains negative. Key financial metrics reported by Nigerian banks are
likely to continue to weaken in the closing months of 2015. Impaired loans have
been rising over the past 12 months” Fitch stated.
We expect
them to rise above the central bank’s informal 5 per cent of total loans cap
but to remain below 10 per cent at year-end. Pressure is mounting on regulatory
capital ratios and we expect Tier 1 capital ratios at many banks to fall below
15 per cent, which is low by recent Nigerian standards. Loan growth is slowing
under the strain of lower oil prices. Our expectations for loan growth are
muted – a nominal 5 per cent increase in 2015, which is low by Nigerian
standards – due to the much deteriorated operating environment. (vanguard)
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