NIGERIA banking sector is expected to record stronger GDP growth to support a 10% increase in banks’ loan books this year following the 15.4% contraction in lending in 2017.
Increased lending will support banks’ interest and lending fee income and mitigate lower interest income from a 660 basis points fall in Treasury bill yields from their peak in 2017. Nigerian banks hold large amounts of treasuries for liquidity reasons.
Growth should also lead to modest improvements in banks’ asset quality. Moody’s expects the non-performing loan (NPL) ratio to range between 15.5% and 18% over the next 12 to 18 months before falling as the negative effects of the 2016 recession begin to wane. Dollar liquidity is also expected to improve.
The outlook for non-financial corporates is becoming increasingly positive, despite some businesses facing foreign exchange challenges.
Companies are likely to expand capital spending on the back of the improving backdrop of the Nigerian economy and better access to US dollars, as well as the recent currency swap agreement between Nigeria and China.
Despite the improved outlook for the overall sector, challenges remain. Nigerian corporates continue to see electricity supply shortages and high interest rates as the biggest inhibiters to business activity.