Moody’s: Earnings of Nigerian banks will decline in 2018

Moody’s, a credit rating and research agency, has projected that the earnings of Nigerian banks in 2018 will decline.

In its report, ‘Banking System Outlook — Nigeria’ released on Wednesday, the agency said operating conditions for Nigerian banks will improve over the next 12-18 months.

“Liquidity risks have eased but earnings pressure and loan quality risks remain,” the report read.

“Despite the stabilization in banks’ foreign currency funding and liquidity profiles, Moody’s expects bank earnings to come under pressure. Capital metrics will also decline marginally over the 12 to 18-month outlook period.

“Additionally, asset quality will remain weak, but a further deterioration in loan performance will be marginal as operating conditions slowly improve.”

Akin Majekodunmi, senior credit officer at Moody’s, said: “Operating conditions for Nigeria’s banks will continue to gradually improve over the next 12 to 18 months, but remain challenging.

“Nigeria’s growth prospects remain vulnerable to global oil prices, as crude oil will remain the nation’s largest export commodity and its main generator of foreign currency for the foreseeable future.

“Nigerian banks’ profitability will nevertheless decline on account of lower yields on government securities, as well as a likely reduction in income from derivatives. However, these pressures will be partially offset by a recovery in loan growth and transaction income from the expansion of digital platforms.”

The agency also suggested that non-performing loans will increase in response to sluggish economic growth.