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Afrinvest Reports: Bank asset quality metrics to improve in 2017

As tier-1 Vs tier-2 banks’ gap widen

By Adaeze Okechukwu

AFRINVEST Limited has said that banks asset quality metrics is expected to improve in 2017, even as the banking sector continues to experience further widening in the gap between tier-1 and tier-2 bank market share.

Tier-1 banks are First Bank of Nigeria, United Bank for Africa, Zenith Bank, Guaranty Trust Bank and Access Bank, while tier-2 banks are the remaining 21 banks in the Nigerian banking industry.

The Group Managing Director, Afrinvest, Mr. Ike Chioke, disclosed this at a press conference held, weekend, in the run-up to the annually-released ‘Banking Sector Report’ to be launched this Friday. During the briefing, Chioke stated: “Despite forward guidance of banks to keep credit expansion minimal in 2017, we believe that the exposure of pre-existing loans to high-risk sectors will continue to pressure asset quality in the year.

“However, we expect asset quality metrics to improve in 2017 against the backdrop of steps being taken to restructure loans to challenged sectors as well as some of the noticeable improvements in the General Commerce and Manufacturing sectors which have been buoyed by developments in the FX market”.

Although forward guidance from majority of the banks indicates reluctance to extend credit, Chioke maintained that any more moves to unify the FX market will lead to nominal expansion in loans, given the proportion of foreign currency loans.  He revealed that in 2016/2017 banks were bifurcated in their performance, explaining that one hand, the depreciation of the currency clearly affected all of them by making their capital-adequacy ratio appear quite compressed.

“The depreciation in the domestic currency resulted in higher risk weighted assets on the books of the banks. Hence, capital adequacy ratios of some banks fell towards threateningly low levels. Consequently, we expect such banks to approach the market in order to raise capital to shore up capital buffers,” he posited.

On the other, he expounded that tier-1 banks have so far benefited from depreciation of the Naira and this has led to the continuous widening of the market share gap between tier-1 banks and tier-2 banks.

He stated: “The bigger banks, typically the tier-1 banks, that have more foreign currency deposits that are risk assets, have benefited from the depreciation and you see them booking exchange gains, thus, explaining the upshoot in the profit numbers of the likes of GTB, Zenith bank   Access bank etc.

“So we have seen this is continuous widening of the gap between the tier-1 and tier-2 banks’ market share. Once upon a time when tier-1 banks accounted for about 60 per cent to 65 per cent of the market share of the banking sector. In the universe of the 14 banks surveyed in the report, we saw that the percentage has risen to about 70 per cent.

“The tier-1 banks have continued to grow often at the expense of the tier-2 banks.”


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