Nigerian Banks continue to face challenges despite AMCON support

Fitch Ratings says in a newly-published special report that the recent rapid credit growth in the Nigerian banking sector may give rise to weakened asset quality and higher impairment charges if left unchecked.
“There was a marked improvement in banks’ asset quality during 2011 following the sale of problem loans to the Asset Management Corporation of Nigeria,” says Denzil De Bie, a director in Fitch’s Financial Institutions team. “However, rapid underlying credit growth of 30%-66% was evident in most of the Fitch-rated banks in 2011 which the agency considers will be a negative credit driver if it continues”.
The special report highlights some of the key rating drivers for Nigerian banks in the context of their mostly ‘b’ range Viability Ratings. “Fitch considers that many Nigerian banks have thin levels of Fitch Core Capital, which are lower than is appropriate for Nigeria’s difficult operating environment. Sustainable Fitch Core Capital ratios will be a key rating driver for any future positive action on the banks’ Viability Ratings,” adds De Bie.
In addition, the agency considers that improved efficiency will be a key differentiator for the more successful banks and will support earnings growth and ultimately contribute to better internal capital generation. The report, entitled “Nigerian Banking Sector: Rapid Credit Growth Returns” is available at www.fitchratings.com.