Afrinvest: Nigerian banks may record low earnings in 2020

Nigerian banks may record low earnings in 2020, according to a new report by Afrinvest, an investment banking firm.

The report titled: ‘The 2020 Nigerian Banking Sector Report’ released on Tuesday, said the 2020 revenue growth of Nigerian banks could suffer due to the economic challenges of the COVID-19 pandemic coupled with countermeasures introduced by the Central Bank of Nigeria (CBN) to support vulnerable businesses.

“The combined effect of higher impairment charges and forex losses and the low yield environment (loan and investment securities) amid higher operating expense (OPEX) charges could lead to a steep decline in the bottom lines of Nigerian banks in the short term,” the report read in part.

The firm said that the introduction of a minimum loan to deposit ratio (LDR) rate of 65 percent, which carried a sanction for defaulting banks, had necessitated banks to embrace mild pricing wars, leading to the reduction of lending rates.

It added that loan restructuring had lowered interest income while CBN’s punitive policies including cash reserve ratio (CRR) would affect interest income negatively, considering that large pools of cash remained non-earning.

“We also note that the rates in the fixed income market have compressed significantly due to robust liquidity positions, thus driving yields on investment securities lower,” the report read.

“In our view, we believe that non-interest income could be the major game changer for toppling growth in 2020 as interest income comes under pressure.

“However, the firm noted that asset quality deterioration could weaken earnings growth and other key financial metrics such as return on equity and return on assets.

It predicted a sustained increase in the total loans of the banking industry as commercial banks comply with the CBN LDR directive and others.