An investment banking firm, Afrinvest, has forecasted in a new report that Nigerian banks may record low earnings in 2020.
The report which was released on Tuesday was themed: ‘The 2020 Nigerian Banking Sector Report’. It states that the revenue growth of Nigerian banks could be adversely affected by the COVID-19 pandemic
“The combined effect of higher impairment charges and forex losses and the low yield environment (loan and investment securities) amid higher operating expense (OPEX) charges could lead to a steep decline in the bottom lines of Nigerian banks in the short term,” the report read in part.
The firm stated that the directive by the CBN which mandates banks to maintain a minimum loan to deposit ratio (LDR) rate of 65 percent, which carried a sanction for defaulting banks, had prompted banks to embrace mild pricing wars, leading to the reduction of lending rates.
It added that loan restructuring had lowered interest income while CBN’s punitive policies including cash reserve ratio (CRR) would affect interest income negatively, considering that large pools of cash remained non-earning.
“We also note that the rates in the fixed income market have compressed significantly due to robust liquidity positions, thus driving yields on investment securities lower,” the report read.
“In our view, we believe that non-interest income could be the major game changer for toppling growth in 2020 as interest income comes under pressure.
“However, the firm noted that asset quality deterioration could weaken earnings growth and other key financial metrics such as return on equity and return on assets.
It foresees a sustained rise in the total loans of the banking industry as commercial banks observe the CBN LDR directive and others.
