Nigeria's major banks have enough forex liquidity to cover 18 months

Moody's Investor Service has recently released a report stating that Nigeria's five largest banks have sufficient foreign currency liquidity to cover 18 months of maturing foreign currency debt obligations. Additionally, the report expects non-performing loans (NPLs) in the Nigerian banking sector to rise to around 12% over the next 12 months. Akin Majekodunmi, Vice President and Senior Analyst at Moody's, joined CNBC Africa to provide insights on the banking sector outlook, particularly focusing on the major banks in Nigeria. Foreign currency liquidity has been a significant challenge for Nigerian banks due to forex shortages in the country. However, Moody's report indicates that the major banks, including Zenith, GT Bank, Access, UBA, and FBN, have enough foreign currency liquidity to meet their upcoming obligations. The report highlights that factors such as the impact of the Treasury Single Account (TSA) and low oil prices have played out, providing some stability to the banks' liquidity position. When addressing the maturity of Eurobonds for these banks, Majekodunmi emphasized that most of the bonds are not due for redemption within the next 12 to 18 months. This, coupled with the breathing space afforded by the current liquidity levels, suggests that the banks have time to navigate challenges and potentially refinance their debts when needed. One of the key concerns raised in the report is the anticipated increase in non-performing loans to 12% over the next year. Despite the concerning forecast, Majekodunmi highlighted that this level of NPLs is not a significant departure from the current figures based on the Central Bank of Nigeria's financial stability report. The report emphasizes the importance of measures such as the accelerated write-off policy by the CBN and the existing restructuring efforts, particularly in the oil and gas sector, in supporting the banks' NPL ratios. Majekodunmi also stressed that while the increasing NPLs pose risks to the banking sector, the first-tier banks in Nigeria demonstrate resilience. The report outlines stress scenarios, including high default rates and loss severities, but concludes that these major banks can absorb such losses and maintain a positive net asset value. Despite potential challenges, Moody's analysis suggests that the broader banking system in Nigeria has the capacity to withstand shocks, with variations in resilience expected between first-tier and second-tier banks. In conclusion, Moody's assessment provides a balanced view of Nigeria's banking sector, acknowledging the challenges posed by forex liquidity issues and rising NPLs while also highlighting the resilience and capacity of the major banks to navigate these challenges. The report underscores the importance of continued monitoring and proactive measures to maintain stability in the sector amidst a dynamic economic environment.