Nigerian Banks will operate in Harsh Economic Environment in Months Ahead

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CEM REPORT | Commercial Banks in Nigeria may experience a deteriorating operating environment between now and 2023.

This is according to a report by Fitch and reported by Business Insider Africa.

The report stated that Nigeria banking sector is not expected to experience material shock/losses, but adverse global macroeconomic conditions which are already affecting the Nigerian economy will bite hard on the sector in the near future.

“Soaring inflation led the Central Bank of Nigeria (CBN) to raise its benchmark rate by 150bp on 24 May, and the pressures on banks’ profitability and asset quality will be higher than we had initially expected for 2022. However, the sharp rise in oil prices this year will mitigate the economic impact from the global risks, and we do not expect Nigeria’s banking sector to experience a material shock.”

According to the Fitch report, the specific ways the current global economic conditions could affect Nigerian banks include:

” The prevailing high inflationary environment and a potential economic slowdown will put pressure on borrowers, albeit to the detriment of the banks’ asset quality.”

“And in light of the rising inflation rate, Fitch said it expects the Central Bank of Nigeria to further increase interest rates; a development that would support banks’ interest margins.”

The banking sector could well escape the impending doom if the country ride on the wave of the  positive outlook for global oil prices.

Majority of bank loans are exposed to the oil and gas industry, as a result whenever the oil and gas sector underperforms, banks’ non-performing loans ratio skyrockets. But with oil prices high, banks assets will be relieved of the pressure.

Also the major source of revenue for the country is crude oil, consequently, when there is a fall in price or the sector runs into any difficulty, the entire economy is set on edge.

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