Weak rule of law, corruption, bane of banking growth—S&P

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BY OMOH GABRIEL, Business Editor

STANDARD and Poor, an  international rating agencies, has said that rapid loan growth and a lapse in corporate governance present the main risks to the Nigerian banking sector.

S & P in its recent report said, “The structurally high level of credit risk is the result of historically weak underwriting standards and a lack of transparency, while potential political interference could undermine the progress made in regulation and supervision and impact our ratings on the banks.

“What is more, a decline in oil prices and production, and in the exchange rate could rapidly affect the banking sector, which is significantly exposed to the oil and gas sector and foreign currency lending. In addition, competition for new business could lead banks to raise their risk tolerance as various regulatory changes and lower interest rates will likely constrain earnings in 2014.

“This presents a risk to banks’ capital if credit growth resumes at a quicker pace than we currently anticipate, or if shareholders become more demanding in terms of dividend distribution. We see no immediate rating triggers. That said, infrastructure spending and the reforms in agriculture and the power sector could in our view translate into improved loan growth opportunities in the real economy, and at the same time support industry diversification and reduce single-name concentrations.

“We also believe sector reforms and rising wealth levels could create more banking opportunities in retail and in small and midsize enterprises.
The report said that despite reasonably sound growth, of the Nigerian economy, weak laws and corruption are serious hindrances to rapid progress.

 

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