<p class="MegaArticleBody_first-p_2htdt">Africa has emerged as the world’s No. 2 banking market in terms of growth and profitability, according to a study by management consulting firm McKinsey and Company.</p>
<div id="attachment_106420" style="width: 810px" class="wp-caption aligncenter"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-106420" class="wp-image-106420 size-full" src="http://cnbc.africa/wp-content/uploads/2017/03/Africashutterstock_110973782.jpg" alt="" width="800" height="600" /><p id="caption-attachment-106420" class="wp-caption-text">Photo: Shutterstock</p></div>
<p class="">Low banking penetration and income levels, as well as economies that are largely cash-based and viewed as a high credit risk, have long been considered major obstacles to the development of the continent’s banking sector.</p>
<p class="">But the McKinsey report released on Wednesday &#8212; drawing on performance data from 35 of Africa’s leading banks and surveys of banking executives and customers &#8212; said the number of banked Africans grew from 170 million in 2012 to nearly 300 million last year.</p>
<p class="">That figure is expected to rise to 450 million in the next five years, with banking revenue rising to $129 billion from about $86 billion now.</p>
<p class="">“Globally, the banking industry is facing disappointing returns and sluggish growth,” the report said. “Africa’s banking sector provides a refreshing contrast. Its markets are fast-growing and nearly twice as profitable as the global average.”</p>
<p class="">However, that growth is by no means evenly spread, either geographically or among income groups.</p>
<p class="">Only five countries &#8212; South Africa, Nigeria, Egypt, Angola and Morocco &#8212; currently account for 68 percent of Africa’s total banking revenue.</p>
<p class="">And about 60 percent of the total retail revenue growth of nearly $18 billion expected over the next five years will be concentrated in South Africa, Egypt, Nigeria, Morocco and Ghana.</p>
<p class="">“Where you are in Africa matters &#8211; in a big way,” the report said. “About 65 percent of African banks’ profitability and 94 percent of their revenue growth are attributable to their geographical footprint.”</p>
<p class="">And though only 15 percent of Africans had annual income above $5,000 last year, McKinsey’s research indicated that nearly 70 percent of retail banking revenue growth through 2025 will come from customers earning between $6,000 and $36,000.</p>
<p class="">Meanwhile, heavy staff costs and labor-intensive, paper-dominated processes hold back productivity, the report said.</p>
<p class="">Credit risk also remains a concern, with non-performing loans accounting for more than 5 percent of African banks’ portfolios.</p>
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<p class="Attribution_content_27_rw">Reporting by Joe Bavier; Editing by David Goodman</p>
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Africa has world’s second-fastest banking growth and profitability: McKinsey

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<p>A new report from the Lagos Chamber of Commerce and Industry says there was a 12 per cent rise in spending by Nigeria&#8217;s banking and oil and gas sectors to provide alternative security over the last two years.</p>


Growing insecurity in Nigeria becoming worrisome – LCCI

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<p>Akintunde Majekodunmi, Vice President and banking analyst at Moody&#8217;s  joins CNBC Africa from London to discuss the state of Ghana&#8217;s banking sector.</p>


Ghanaian banks’ revenue to decline – Moody’s

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<p>Moody&#8217;s Investors Service has released their outlook for African Banks which notes a negative outlook for the African banking system in 2018 reflecting high macroeconomic risks that expose banks to asset quality pressures.</p>


Moody’s 2018 outlook for African banks negative

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<p>Recent data from the Nigeria Deposit Insurance Corporation shows that the total non-performing loans in the banking industry hit 2.42 trillion naira, at the end of September, the highest in 10 months.</p>


Nigerian banks’ non-performing loans hit 10-month high

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<p>Morgan Stanley Capital International index has deleted four Nigerian Banks from its MSCI frontier Market indexes Muyiwa Oni, Banking Analyst at Stanbic IBTC joins CNBC Africa to analyse Nigeria’s banking sector.</p>


MSCI deletes 4 Nigerian banks from frontier market index

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<p>According to research done by the World Bank in 2014 an estimated 2 billion working-age adults globally have no access to the types of formal financial services delivered by regulated financial institutions that wealthier people rely on. Senior Financial Analyst for CGAP, Gerhard Coetzee, says customer-centricity is key to banking the unbanked.</p>


Why customer centricity matters

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<p>Robert Aderinmola, Customer insight and Analytics partner, corporate planning at Diamond Bank joins CNBC Africa to discuss the trends that he expects will drive retail banking over the next 3 years.</p>


Retail banking technologies you’ll see in the next 3 years

<p data-reactid="42">Kenyan authorities should take a closer look at the impact of a cap on lending rates imposed a year ago, to determine if its intended purposes are being met, the chief executive of Standard Chartered Kenya said.</p>
<p data-reactid="43">The government capped commercial lending rates at four percentage points above the central bank’s benchmark rate, which stands at 10 percent, and put a minimum deposit interest rate of 70 percent of the benchmark.</p>
<p data-reactid="44">It argued that lenders had failed to lower costs of credit to consumers, despite enjoying some of the highest rates of return on equity on the continent.</p>
<p data-reactid="45">Lamin Manjang, the head of the Kenyan unit of Standard Chartered, said some borrowers, such as small and medium enterprises, had been locked out of the credit market, while overall lending growth had ground to a near halt.</p>
<p data-reactid="46">“With the data that we have got over the last 12 months since the rate cap was implemented, it should give cause for a review,” Manjang told Reuters in a Friday interview.</p>
<p data-reactid="47">He said the government needed to consider issues of credit availability to borrowers when it carries out a review of the cap.</p>
<p data-reactid="48">“What the bank would like to see is a situation where rates are determined by market forces because that is what is going to be efficient and sustainable in the long run,” he said.</p>
<p data-reactid="49">The central bank, which prefers letting lenders lower costs voluntarily, has, jointly with other parties, been carrying out a study on the impact of the rate cap.</p>
<p data-reactid="50">Jude Njomo, the legislator who sponsored the rate cap bill, has however warned any move to change the rate cap law will fail, stating there is no evidence banks would lower rates if not compelled to do so.</p>
<p data-reactid="51">Manjang said lenders had closed some branches, laid off staff and seen their loan book growth slow in response to the cap.</p>
<p data-reactid="52">The situation will become tougher under a new accounting standard due to come into force on January 1 which will require lenders to shift their loss models from incurred to expected.</p>
<p data-reactid="54">“When an asset is booked we will anticipate what the loss would be and then take it up front. That change will clearly have an impact across the banking industry,” he said.</p>
<p data-reactid="55">StanChart plans to use its reserves for the extra provisions, which will lower its core capital ratio slightly from the current 21 percent but the bank will not need to do extra capital raising, he said.</p>
<p>“We will still be comfortably within the limits that have been set,” Manjang said, referring to the minimum capital requirement of 14.5 percent.</p>
<div class="Attribution_attribution_o4ojT" data-reactid="56">
<p class="Attribution_content_27_rw" data-reactid="57">Editing by Jason Neely</p>
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Standard Chartered Kenya says time right to review impact of rate cap

<p data-reactid="40">STELLENBOSCH, South Africa (Reuters) &#8211; A budget bank is booming in South Africa’s economic slump, challenging the decades-long dominance of the “big four” lenders and prompting a price war that is driving down banking costs in a country where many people can’t afford an account.</p>
<p data-reactid="41">Capitec Bank has doubled its customer numbers over the past five years and quadrupled in market value, even as South Africa’s economic growth has stalled and the country has slid into recession, squeezing household incomes.</p>
<p data-reactid="42">It offers a single “no-frills” bank account with low fees, as well as unsecured loans to customers including low-income borrowers, but steers clear of the more complex financial products offered by rivals.</p>
<p data-reactid="43">This model has insulated it from the downturn, which has constrained mortgage lending and vehicle finance, key business areas for the four biggest banks: Standard Bank, FirstRand, Barclays Africa and Nedbank.</p>
<p data-reactid="44">Those four heavyweights have reigned unchallenged over South Africa’s financial sector since the 1990s.</p>
<p data-reactid="45">But Capitec, whose shares have risen more than 300 percent since 2012 and over 30 percent this year, now has a market value of 103 billion rand ($7.9 billion) &#8211; closing in on the number four lender Nedbank, which is worth 110 billion rand.</p>
<p data-reactid="46">The Stellenbosch-based bank, which launched in 2001, has 9 million customers, of which 4 million are so-called primary clients who have their salaries deposited into these accounts.</p>
<p data-reactid="47">“Most of them we’ve taken from other banks,” Capitec Chief Executive Gerrie Fourie told Reuters in an interview, saying that his bank attracts 100,000 to 150,000 new customers a month.</p>
<p data-reactid="48">“The economy is helping us,” he added. “People have started questioning why they have to pay banking costs.”</p>
<p data-reactid="49">There are clear risks to the bank’s business model of offering unsecured loans to lower-income borrowers without any other forms of lending to counter any losses, according to industry experts.</p>
<p data-reactid="50">Capitec’s rise is nonetheless forcing its rivals to respond. They are all fighting back with their own no frills accounts aimed at hard-pressed consumers.</p>
<p data-reactid="51">This is pushing down the cost of banking in South Africa &#8211; a significant development in a country where only around half of the 55 million population have bank accounts, according to Nielsen research, partly because of the charges involved.</p>
<h3 data-reactid="52">BIG FOUR FIGHTING BACK</h3>
<p data-reactid="53">Bank fees for deposits, withdrawals, transfers and administration have for years largely ranged between 100 and 250 rand a month, but can rise as high as 450 &#8211; a stiff ask in a country where the minimum wage is 20 rand an hour.</p>
<p data-reactid="54">Nedbank has reduced the administration fees for its most basic account to Capitec’s level of 5.50 rand a month and also lowered transaction costs. It now offers bank accounts that are about half the price of five years ago.</p>
<p data-reactid="55">Chief Executive Mike Brown told Reuters it was focusing strongly on entry-level banking and was looking to that segment for customer growth.</p>
<p data-reactid="56">The other big banks have gone even further, more than halving their fees for their most basic accounts over the past five years to undercut Capitec.</p>
<p data-reactid="57">FirstRand’s FNB arm now offers an account with a monthly fee of 5.25, Standard Bank runs one for 4.99 rand per month, while Barclays Africa’s Absa division offers 4.95 rand.</p>
<p data-reactid="58">Standard Bank’s co-Chief Executive Ben Kruger told Reuters it needed to be able to respond nimbly to counter lean new entrants like Capitec who have been able to enter the market without the stifling processes established banks have inherited from their paper-based legacy systems.</p>
<p data-reactid="59">“Capitec is gaining market share in the bottom end and the middle of the market and they are increasingly becoming more aggressive in business banking,” said the bank’s other Co-CEO, Sim Tshabalala.</p>
<p data-reactid="60">FirstRand, the largest banking group with a market value of 318 billion rand, has 7.7 million customers through its FNB arm; Standard Bank, valued at 276 billion rand, has 12 million; Barclays Africa, which is worth 128 billion rand, has 9.4 million through Absa; and Nedbank has 5.7 million.</p>
<h3 data-reactid="61">RISKS TO CAPITEC MODEL</h3>
<p data-reactid="62">Nestled in the vineyards of the Western Cape, far from South Africa’s financial hub of Johannesburg, Capitec has enjoyed a rapid rise since it launched 16 years ago. The biggest growth came during the economic downturn of the past five years, both in terms of customers and market value.</p>
<p data-reactid="63">“Capitec came from zero, to being a big player,” said Feroz Basa, head of Old Mutual’s Global Emerging Markets Fund. “It’s centred around this low-cost model, that’s how they are gaining market share.”</p>
<p data-reactid="64">The retail bank has also been swiftly expanding its branch network, adding 76 last year to reach more than 800, compared with Absa’s 719, Standard’s 630, FNB’s 645 and Nedbank’s 513.</p>
<p data-reactid="65">The bank’s growing deposit base has narrowed its own cost of funding significantly, Arqaam Capital analysts Jaap Meijer and Leen Antonios said in a note, adding that they expect it to generate higher-than-expected revenues in the next few years.</p>
<p data-reactid="67">However, in terms of risks, the amount of Capitec’s loans in arrears at the end of December were up 24 percent to compared with a year earlier, at 2.86 billion rand, outstripping the 11 percent growth rate of its interest income.</p>
<p data-reactid="68">Unlike its rivals, the bank offers only unsecured loans and cannot count on other lending areas such as mortgages to counter any losses. The company is due to report half-year results at the end of September.</p>
<p data-reactid="69">“The other banks might have a bit of a moat by having vehicle finance, housing loans and bonds and higher value loans,” said Momentum SP Reid banking analyst Brian Mugabe. “Their (Capitec’s) biggest challenge comes as they move up the value chain.”</p>
<p data-reactid="70">Nonetheless, as the price war for low-income customers gears up, Capitec warned its bigger competitors that it plans to climb the income ladder &#8211; but not all the way up.</p>
<p data-reactid="71">“We designed this bank to service 90 to 95 percent of South Africa’s banking public,” said Fourie. “The wealthiest 5 to 10 percent of the population we leave for the guys offering private banking services.”</p>
<p>($1 = 13.2158 rand)</p>
<div class="Attribution_attribution_o4ojT" data-reactid="72">
<p class="Attribution_content_27_rw" data-reactid="73">Additional reporting by Tiisetso Motsoeneng; Editing by Pravin Char</p>
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Capitec: The budget bank rattling South Africa’s financial sector

<p><span class="articleLocation">PRETORIA</span> (Reuters) &#8211; Barclays Africa Group unduly benefited from apartheid-era bailouts and must repay 1.1 billion rand ($86 million), South Africa&#8217;s anti-graft watchdog said on Monday.<span id="midArticle_byline"></span></p>
<p>Public Protector Busisiwe Mkhwebane in January reopened a probe of Barclays South Africa following a wider report published last November by her predecessor.</p>
<p>She said on Monday that the probe had found that the apartheid government breached the constitution by supplying Bankorp, which was acquired by Barclays Africa unit Absa in 1992, with a series of bailouts from 1986 to 1995.</p>
<p>Barclays Africa would have to pay 1.1 billion rand ($86 million), Mkhwebane said, adding that her office had referred the matter to the Special Investigating Unit to help recover the money.</p>
<p>&nbsp;</p>
<h2><strong>Barclays Africa response to Public Protector’s Press Conference</strong></h2>
<p>Absa has noted the Public Protector’s statement today regarding her investigation into the SA Reserve Bank’s assistance to Bankorp between 1985 and 1995. Absa acquired Bankorp in April 1992. We have not yet received a copy of the report and we are urgently requesting the Public Protector’s Office to send it to us. Once we have read it we will consider our legal options including seeking a High Court review.</p>
<p>Absa met all its obligations in respect of the loan provided by the SA Reserve Bank by October 1995. It is our firm position that there is no obligation to pay anything to the SA government.</p>
<p>(Reporting by Dinky Mkhize; writing by Ed Stoddard and Tiisetso Motsoeneng; editing by James Macharia and Jason Neely)</p>


Barclays Africa says “no obligation” to pay SA govt

<p><span class="articleLocation">TJ Strydom | JOHANNESBURG</span></p>
<p>South African life insurer MMI Holdings said it will start offering loans and take deposits as part of a deal with lender African Bank, as it looks to revive declining profits.<span id="midArticle_byline"></span></p>
<p>MMI, the No. 3 long-term insurer in South Africa, has seen profits drop for the past two years as weak growth and poor investment returns weighed on revenues.</p>
<p>The insurer plans to use African Bank to build up a loan book in excess of 10 billion rand ($780 million) over the next five years and to share the profits equally with the bank.</p>
<blockquote><p>&#8220;African Bank will be the exclusive provider of consumer credit products to MMI, for solutions falling within its product range,&#8221; MMI said, adding that the lender will use the insurer&#8217;s existing sales channels.</p></blockquote>
<p>African Bank, a lender that grants loans not backed by assets, was rescued and recapitalised by South Africa&#8217;s central bank after its parent African Bank Investments Limited collapsed in 2014.</p>
<p>In April last year, the bank was split into a &#8220;good&#8221; business aimed at attracting new clients, and a new company to mop up old debts.</p>
<p>&#8220;African Bank will act as sponsoring bank to facilitate deposit-taking and extend transactional banking capabilities that MMI wishes to offer to its clients,&#8221; the insurer said in a statement.</p>
<p>MMI also plans to sell to African Bank&#8217;s clients, making its full range of insurance products available to African Bank account holders, with the goal of generating more than 1 billion rand in premiums within five years.</p>
<p>($1 = 12.8432 rand)<span id="midArticle_byline"></span></p>
<p>(Reporting by TJ Strydom; Editing by Susan Fenton)</p>


South African insurer MMI in lending, sales deal with African Bank

<p><span class="articleLocation">NAIROBI</span> (Reuters) &#8211; KCB Group, Kenya&#8217;s biggest lender by assets, has proposed to take over National Bank of Kenya through a share swap, to increase its share of the government&#8217;s banking business, documents seen by Reuters showed on Monday.<span id="midArticle_byline"></span></p>
<p>Kenya&#8217;s banking industry is undergoing consolidation after the closure of two mid-sized lenders and a third smaller one, in the months to April 2016, exposed weaknesses caused by corporate governance lapses.</p>
<p>KCB and National Bank of Kenya share the same largest shareholders, the state and the state&#8217;s pension fund, and they have both traditionally competed for the government&#8217;s banking business, including deposits.</p>
<p>In its proposal, KCB, which also operates in neighbouring countries, said it would initially take over 70 percent of shares of National Bank of Kenya, before announcing its offer for the remaining stake.</p>
<p>It said in the documents it would offer shares of KCB to the owners of National Bank of Kenya to complete the deal, but it was also open to other transaction modes.</p>
<p>(Reporting by Duncan Miriri, editing by Louise Heavens)</p>
<p>&nbsp;</p>


KCB Group offers to take over National Bank of Kenya

<ul>
<li>Apple is launching peer-to-peer payments in iOS 11.</li>
<li>It&#8217;s called Pay Cash and lets users send money to family or friends.</li>
<li>They can even transfer the money right out to a bank account.</li>
<li>This will compete with Square Cash, Venmo and other solutions.</li>
</ul>
<p><a href="http://www.cnbc.com/todd-haselton/" rel="author">Todd Haselton</a> | <span class="twitter-url"><a href="http://twitter.com/@robotodd">@robotodd</a></span></p>
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<p>Apple just announced that iOS 11 will support peer-to-peer payments through a new feature called Pay Cash, making it a direct competitor to similar services offered by Square Cash, PayPal, Venmo and even Facebook.</p>
<p>Peer-to-peer payments allow one user to pay another one through their smartphone. You might use it to pay a friend for pizza, for example, or to split a meal at a restaurant. It&#8217;s an industry that&#8217;s been growing in popularity, and one Apple has been rumored to enter.</p>
<p>Pay Cash will allow you to easily send money to family and friends, transfer it to and from your bank, and to even use it for Apple Pay purchases.</p>
<p>It&#8217;ll be a part of iOS 11, which launches later this year, Apple said Monday at the Apple Worldwide Developers Conference.</p>
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Apple launches peer-to-peer payments to take on Square, PayPal and Venmo

<p>Barclays (<span id="symbol_BARC.L_0"><a href="http://www.reuters.com/finance/stocks/overview?symbol=BARC.L">BARC.L</a></span>) cut its stake in Barclays Africa Group (<span id="symbol_BGAJ.J_1"><a href="http://www.reuters.com/finance/stocks/overview?symbol=BGAJ.J">BGAJ.J</a></span>) to 15 percent sooner than expected on Thursday, ending more than 90 years as a major presence in the continent.</p>
<p>The British bank, which under Chief Executive Jes Staley is firmly focused on Britain and the United States, said it was selling 2.2 billion pounds ($2.83 billion) worth of shares in Barclays Africa Group due to strong investor demand.</p>
<p>Barclays had said on Wednesday it would sell shares worth 1.5 billion pounds in its second such sale since announcing plans to offload most of its African business.</p>
<p>The bigger share sale initially lifted shares in Barclays, which is partly relying on the funds raised to meet capital requirements identified as a concern by the Bank of England in November. By 0835 GMT, the shares were down 0.1 percent.</p>
<p>The sale is expected to mean an increase of approximately 27 basis points to Barclays&#8217; core capital ratio, a key measure of financial strength, which was 12.5 percent at 31 March 2017 .</p>
<p>&#8220;We still see this deal as utterly transformational for Barclays’ capital position, which in turn offers specific opportunities for earnings enhancement,&#8221; analyst Ian Gordon at Investec wrote in a note following the announcement.</p>
<p>Barclays, whose shares were trading up 0.5 percent at 0740 GMT, said on Wednesday that South African pension fund Public Investment Corporation would buy 7 percent of the shares, raising its holding to 14 pct according to Thomson Reuters data.</p>
<p>The Barclays Africa Group shares, which were up nearly 3 percent at 143 rand at 0835 GMT, will be priced at 132 rand a share, the bank said.</p>
<p>That represents a 5 pct discount to Wednesday&#8217;s closing price of 139 rand and will raise an aggregate 2.2 billion pounds, the bank said, adding it will then place an additional 12.7 million shares in a black economic empowerment scheme.</p>
<p>Barclays said in March 2016 it would sell most of its 62.3 pct stake in Barclays Africa Group, giving itself two to three years to complete the sale. Its first sell down of 12.2 percent was completed in May 2016, but the bank had since been hindered by regulatory delays and political upheaval in South Africa.</p>
<p>Since taking over 18 months ago, Staley has scaled back the bank&#8217;s geographic footprint and emphasized investment banking, although his attempts to revitalize this business have been clouded by investigations in the U.S. and Britain.</p>
<p>Staley has also faced criticism from investors following his attempts to unmask a whistleblower, which Barclays insiders fear could unseat him if the findings of inquiries are damning.</p>
<p>Barclays also faces regulatory obstacles, with an ongoing probe by Britain&#8217;s Serious Fraud Office (SFO) into its 2008 cash call at the height of the financial crisis and allegations by the U.S. Department of Justice (DOJ) over mortgage mis-selling.</p>
<p>Analysts at KBW said the completion of the sale earlier than expected was positive for the bank&#8217;s capital ratio.</p>
<p>&#8220;However this still remains far from market leading (still below Credit Suisse or Deutsche Bank), whilst a number of headwinds remain outstanding,&#8221; they added in a note.</p>
<p>(Editing by Rachel Armstrong and Alexander Smith)</p>


Barclays makes early African exit with $2.8 billion share sale

<p><span class="articleLocation">Oludare Mayowa | LAGOS</span></p>
<p>Nigeria&#8217;s overnight lending rate dropped to 26 percent on Friday from 65 percent a day earlier after the central bank refunded excess naira offered in an earlier dollar sale to commercial lenders, injecting liquidity back into the money market.<span id="midArticle_byline"></span></p>
<p>Traders said that a cash squeeze on the money markets on Thursday after lenders provided naira to participate in a central bank currency intervention had pushed the overnight rate sharply higher.</p>
<p>The banking system&#8217;s cash balance with the central bank stood at 24.61 billion early on Friday before the central bank refund.</p>
<blockquote><p>&#8220;We see rates easing further next week. We anticipate about 200 billion naira would be disbursed to government,&#8221; one currency trader said.</p></blockquote>
<p>The central bank sells hard currency regularly on the interbank market to boost dollar liquidity but in turn mop-up the naira. If it does not take up all offers, the excess naira are returned to lenders.</p>
<p>Mired in recession, Nigeria is grappling with a currency crisis and dollar shortage brought on in part by the low price of oil, the cornerstone of Africa&#8217;s largest economy.</p>
<p>The naira closed at 305.45 to the dollar on the spot market on Friday, and was quoted at 381 on the black market. It was quoted at 382 per dollar at a trading window for investors.</p>
<p>(Reporting by Oludare Mayowa; Editing by Chijioke Ohuocha)</p>


Nigeria overnight rate falls sharply as liquidity crunch eases

<p>Moody&#8217;s Investors Service is maintaining its stable outlook on the Nigerian banking system, reflecting the rating agency&#8217;s view that acute foreign-currency shortages will gradually ease, though loan risks will remain high.</p>
<p>The outlook expresses Moody&#8217;s expectation of how bank creditworthiness will evolve in Nigeria over the next 12-18 months.</p>
<p>Moody&#8217;s report, entitled &#8220;Banking System Outlook: Nigeria,&#8221; is available on <a href="http://www.moodys.com">www.moodys.com</a>. Moody&#8217;s subscribers can access this report via the link provided at the end of this press release.</p>
<p>&#8220;With oil prices and economic activity gradually recovering in Nigeria, we expect banks&#8217; dollar liquidity pressures to gradually ease over our<br />
outlook period,&#8221; says Akin Majekodunmi, Vice President and Senior Analyst at Moody&#8217;s. &#8220;However, we expect asset quality to worsen slightly over the outlook period, as historically low oil prices, currency depreciation and economic contraction experienced in 2016 continue to generate new nonperforming loans in 2017.&#8221;</p>
<p>The rating agency expects Nigeria to see real GDP growth of 2.5% in 2017 and 4% in 2018, after a 1.5% contraction last year, as noted in March 2017. The revival will be supported by government measures to expand non-oil sectors and its commitment to fund large infrastructure projects, as well as by a partial rebound of global oil prices from lows last year.</p>
<p>Risks to asset quality are likely to remain high, with nonperforming loans (NPLs) likely to rise to between 14-16% from 14% at end-2016. They should, however, reach a peak as write-offs, loan restructurings, and the strengthening economy take effect.</p>
<p>Nigerian banks should have sufficient capital to absorb expected losses, though Moody&#8217;s expects system-wide tangible common equity (TCE) to only decline slightly to 14.1% of adjusted risk-weighted assets by year-end 2018 from 14.7% at the end of 2016. The slight shift is primarily due to increased loan-loss provisions and the effect of further expected naira depreciation on the balance of risk-weighted assets denominated in foreign currency.</p>
<p>Moody&#8217;s also sees the banks&#8217; loan-loss provisioning weakening their net profitability. The rating agency expects return on assets to decline to around 1% in 2017 from 1.3% at the end of 2016 on account of high provisioning costs at around 3% of gross loans. System-wide pre-provision income will likely remain robust, however, at around 4% of average total assets, supported by high yields on government securities and profits on open foreign currency positions.</p>
<p>Lastly, Moody&#8217;s considers there to be a high probability of the Nigerian government supporting banks in case of need, given the significant<br />
consequences of a bank collapse to both the payments system and the wider economy.</p>
<p>Subscribers can access the report at:<br />
<a href="http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1069058">http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1069058</a></p>


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