Nigerian banking sector outlook

Nigeria's banking sector has been through a tumultuous period, facing challenges such as rising non-performing loans, declining asset quality, credit concentration, and high foreign exchange exposures. The Asset Management Corporation of Nigeria recently announced Sigma Golf Nigeria Limited and Riverbank Investment Resources Limited as the new investors in Keystone Bank, marking a significant development in the sector. To shed light on the current state of Nigeria's banking sector, Akintunde Majekodunmi, Vice President, Banking Analyst at Moody's, joined CNBC Africa from London for a discussion. Despite the challenges faced by Nigerian banks, there are investment opportunities to be explored in the sector. Akintunde highlighted the recent acquisition of Keystone Bank by the private sector as a positive move for the industry. While Moody's does not rate Keystone Bank, the acquisition signifies the bank's transition to private ownership, reflecting investor confidence in Nigeria's banking sector. Moody's believes that Nigerian banks demonstrate resilience in terms of asset quality and liquidity. Although non-performing loans (NPLs) have seen an increase, Moody's expects the rise to be manageable in 2017. Foreign currency liquidity pressures experienced in 2016 are projected to stabilize in 2017, with more liquidity entering the system. Despite the anticipation of a slight increase in NPLs, Moody's remains optimistic about the resilience of Nigerian banks. Akintunde pointed out that while NPLs are expected to rise, the rate of increase is likely to be slower compared to previous years. With a significant portion of upstream oil and gas exposure restructured and easing FX liquidity pressures, Moody's forecasts NPLs to stay within the range of 12% to 14%, with a higher likelihood of hovering around 14%. In response to concerns about the origin of new NPLs, Akintunde clarified that the increase in NPLs refers to new cases and is not attributed to past actions by Amcon in 2009-2010. He emphasized that various factors support Moody's view of a manageable increase in NPLs, including the restructuring of upstream oil and gas exposures and improved FX liquidity in the banking system. The recent improvement in FX liquidity, especially in certain market segments, is viewed as a positive development for banks in Nigeria. The central bank's increased dollar sales to banks have bolstered FX liquidity, providing relief for importers not restricted by the ban on 41 items. Additionally, the improved FX liquidity is expected to alleviate valuation concerns and positively impact bank capital, given the significant portion of banks' risk-weighted assets denominated in foreign currency. In conclusion, despite the challenges confronting Nigeria's banking sector, opportunities for investment exist, with the recent acquisition of Keystone Bank signaling investor interest in the industry. Moody's assessment of Nigerian banks' resilience in asset quality and liquidity bodes well for the sector's stability. As the sector navigates through challenges and capitalizes on emerging opportunities, investors have a window to engage in Nigeria's dynamic banking landscape.