First Bank of Nigeria Ltd., the country’s biggest lender by assets, will be among banks that need to raise capital or restructure their balance sheets in the next 18 months to combat low oil prices, according to Standard & Poor’s.
S&P increased its view of Nigeria’s Banking Industry Country Risk Assessment to nine from eight on April 15, in line with Kenya and one notch above the lowest level. The more than 40 percent plunge in Brent crude prices since June is weakening the economy of Africa’s biggest oil producer and may lead to an increase in bad loans, the ratings company said.
Nigeria’s central bank, which requires lenders to have a capital adequacy ratio, or CAR, of at least 15 percent, last year removed some assets that count as capital as it sought to bolster the financial industry’s ability to withstand shocks. Banks should build a buffer of 1.5 to 2 percentage points above the regulator’s benchmark, according to Matthew Pirnie, a director in S&P’s financial services team.
“There will be a lot of capital raising,” Pirnie said in an interview in Lagos Thursday. First Bank “is one that in the next 12 to 18 months will have to do some sort of capital raising or come up with a balance sheet strategy” that may include “slowing growth or removing assets.”
First Bank’s CAR stands at 16.7 percent and will rise as the company retains more profit in future, Bello Maccido, chief executive officer of holding company FBN Holdings Plc., said in an interview in Lagos on April 13. “We are not going to sell shares to do that,” he said.
Loan Losses
Loan losses in Nigeria will increase to as much as 3 percent in the next two years from about 1.8 percent, according to Pirnie. The figure for South African banks is less than 1.5 percent, he said.
Several Nigerian lenders have already started to boost their capital buffers. United Bank for Africa Plc. started a 11.5 billion naira ($58 million) share sale in December, while Access Bank Plc. completed one of 53 billion naira on March 18. Skye Bank Plc., whose credit rating S&P lowered to B- on April 15, six levels below investment grade, plans to raise 50 billion naira in a rights issue, it said in March.
Nigerian banks have to contend with a weaker naira as well as increased risks from their lending to oil and gas explorers. The naira has fallen 17 percent against the dollar in the past six months as export revenues from oil plunged.
Non-performing loans will probably rise among power companies, many of which have borrowed in dollars, as well as small businesses, which are struggling to pay for imports, Pirnie said.
“There are a number of pressure points,” he said. “We are concerned about foreign-currency lending.”
FBN advanced 2.7 percent to 9.79 naira by 1:29 p.m. in Lagos. The stock is down 37 percent since the end of June, a deeper slump than the country’s banking index, which has fallen 7 percent.
source Bloomberg