Nigerian banks brace for tough times ahead


According to experts, the key driver of all concerns is around the low oil prices which are less than 50 US dollar per barrel.

“A low oil price affects the macro economic outlook and currency that feeds into monetary policy decisions,” Adesoji Solanke, VP and SSA banking analyst, Renaissance Capital told CNBC Africa.

(READ MORE: Oil prices slash Nigeria 2015 GDP growth)


Solanke added that, the impact of this outlook could be higher monetary policy rate which will ultimately affect the banks.

“From an operational point of view, this year will continue to see [involvement from] the financial regulations committee, considering that the naira is under pressure,” added Solanke.

“We are likely to see direct impact into lending regulations and structuring in the oil and gas space.”

Solanke also said raising capital this year will be vital.

“Some of the banks such as Diamond Bank have already started building on their capital base through rights issue,” he said.

Fitch, a ratings agency, recently downgraded the outlook of Nigerian banks and Solanke says these institutions were distressed with the environment.

(READ MORE: Nigeria must adjust to “permanent” oil price shock: finance minister)

“If you look at the exchange rate as of last week, some of these banks are trading at extreme valuations and are at distressed levels,” he said.

“We are likely to see increased concerns for the sector in the next 12 months coupled with issues of dividends, earnings  and reduction in interest income.”