More reasons why the Monetary Policy Committee (MPC) meeting on Tuesday, retained all the critical rates controlling the banking sector are still emerging.
Details from the recent Banking Industry report by Agusto & Co. showed that about 47 per cent of the banking industry’s impaired loans are collectively held by the top five banks and the scenario has heightens their concentration risks .
The affected banks include Zenith Bank Plc, Guaranty Trust Bank Plc, FirstBank Nigeria Limited, United Bank for Africa (UBA) Plc, and Access Bank.
The report noted that the performance of the Nigerian banking industry is largely dependent on the macroeconomic environment, as well as the performance of the top five banks.
Agusto & Co. in the report revealed that the impaired loans were mainly in the oil & gas, transport & communication sectors, accounting for 37 per cent and 11 per cent respectively of the industry’s total classified loans.
For instance, the listed banks accounted for 60 per cent of the loans disbursed to this sector, which further raised the fear of “heightening of concentration risks.”
Further analysis showed that the oil and gas sector loan disbursement by the top five banks were in the region of over 66 per cent of the banking industry’s total exposure to the upstream; 64 per cent of total exposure to the midstream and 73 per cent of the total loans granted to the downstream.
The report further added that “On an average, each of the top five banks have disbursed over N500 billion to the oil & gas sector. This makes them vulnerable to the financial performance of this sector which has been enfeebled by global circumstances”.
“Of the impaired loans to oil & gas sector (about 37%), the top five banks account for 77 per cent of these impaired loans. These loans largely granted in foreign currencies were further exacerbated by the volatility of the domestic currency.
“There have been arguments that given the sheer size of the top five banks’ loan book, they will continue to account for a sizeable chunk of the banking industry’s impaired loans especially in periods of weak macroeconomic fundamentals,” the report stated.
Whereas the top five banks also account for 57 per cent of the industry’s total assets, analysts recall that the last two years saw intense weakening of the macroeconomic fundamentals against the backdrop of lower crude oil prices.
However, the report was quick to advise the five banks to as a matter of safety of the economy and the sector in particular strengthen their risk management framework particularly in the areas of concentration risk, early warning signals and enhanced oversight governance to avoid experiences of ‘Hurricane Sanusi’ which swept some highly respected banks some years ago.
