CBN monetary tightening poses some challenges for banks – FBN Capital

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By PETER EGWUATU

The Central Bank of Nigeria (CBN)’s recent monetary tightening poses some challenges for the banking sector, FBN Capital has said.

In its review of the banking sector for the third quarter of 2012, FBN Capital Research Team said, “There are growing concerns about aggressive loan growth, banks’ exposure to very low quality borrowing borrowers in the Small and Medium Enterprises (SMEs)/ Retail and the downstream oil and gas sectors, and that the high interest rate environment could lead to a faster than expected rise in Non Performing Loans (NPLs).”

Continuing, FBN Research Team, stated “We do not expect earnings growth for the banking sector to be dampened significantly as a result of the CBN’s measures. The larger banks are likely to fare better in this environment in our own view, given their ample liquidity (Access Bank, UBA, and Zenith) and/ or relatively low cost funds (GTBank).

“As for loan growth, we are not alarmed by the 50 per cent year on year average growth in credit to the private sector in first half 2012 because this figure is significantly distorted by base effects, i.e. AMCON transactions. As of June 2012, credit to the private sector had grown over December 2011 levels by just 3.3 per cent.

Our universe appears to be gaining share, having recorded around 10 per cent growth in net loans and advances on average. With respect to downstream oil and gas, our banks’ exposure to the most at-risk names is limited and their capital ratios are robust.”

Meanwhile, Dr. Doyin Salami, an economist and Senior Lecturer at Lagos Business School, while speaking at the FBN Capital Second Investor Conference at the weekend, decried the crowding out of private sector of funds by the government, saying, “governments cannot be borrowing at this rate they are doing and we expect the interest rate to come down.”

According to him,“ It is not even advisable to fix interest. Interest will come down gradually on its own when other factors are properly in place. Inflation rate is at somewhere 11.3per cent, so I cannot advise government to fix interest rate.

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