Nigeria’s highly dollarised banking sector will experience increased import costs as U.S dollar strengthens – Fitch

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The next 12 to 18 months will be “very difficult” for African banks as widespread inflation, currency devaluations and interest rate hikes sweep the region, a senior director of credit ratings agency Fitch said on Wednesday.

Nigeria, an import-dependent country with a highly dollarised banking sector, is likely to experience increased import costs as the dollar strengthens, which corporate borrowers will struggle to pass on to customers, Fitch Senior Director Mahin Dissanayake said during a press briefing.

Currency shortages are likely to pose challenges to Nigerian banks directly, while they may also see more loans to small businesses become impaired, Dissanayake said.

Nigerian banks are likely to be impacted by the naira currency’s ongoing depreciation, he said.

Even as African economies have struggled over the last year in the face of external forces including Russia’s war in Ukraine, a global economic downturn and lingering effects from the COVID-19 pandemic.

Growth opportunities over the next 1-1/2 years will be limited, but regional banks are expected to maintain their profitability in the face of shocks of medium severity, Fitch Senior Director Mahin Dissanayake said during a press briefing.

“These countries have global pressures as well as domestic pressures, so we think that the operating environment for banks is looking quite gloomy going forward,” Dissanayake said.

“The opportunities for growth will certainly be limited … but the COVID-19 pandemic showed us that African banks can be resilient when faced with global shocks.”

Dissanayake said that Morocco is the country most likely to be effected by the economic slowdown in Europe, given its dependence on European trade and tourism.