Nigerian banks expected to make profit recovery
Profits in Nigeria’s banking sector will recover this year but are unlikely to reach peaks seen before last year’s $4 billion bailout, the head of the country’s oldest ratings agency said on Monday.
Vivien Shobo, managing director of Agusto & Co, expected the banking sector to notch up a cumulative single-digit billion naira profit this year after a loss in 2009, but to stay shy of 2008 profit levels of around 40 billion naira.
“The industry made a loss in 2009 … In the next year the industry would have recovered but not to the level of double digits,” she told Reuters in an interview. “Profitability levels have slowed, eroded by provisioning.”
Investors say valuations of Nigerian bank stocks make them potentially among the most attractive equity picks in frontier markets this year after sharp falls in 2009.
But Shobo forecast the sector’s return on equity (ROE) would only recover to a single-digit percentage this year from a negative 20 percent last, compared with a positive 22 percent in 2008.
The central bank injected $4 billion into nine banks last year and sacked their top management after what it described as reckless lending which left the institutions so weakly capitalised that they posed a systemic risk.
The nine banks had loan losses totalling 2.2 trillion naira which have eroded shareholders’ funds, leaving them with a negative net worth of around 950 billion naira, according to the banks’ financial statements published late last year.
Agusto & Co downgraded the banking sector two notches to BBB from A following last year’s bailout. Shobo said no further downgrade was expected in the short term as the worst seemed to be over, but a re-rating could come after rescued banks were recapitalised and loan losses were adequately taken care of.
Nigeria’s regulators have vowed to take a tough line on transparency and improving disclosure to win back investor confidence after the stock market fell more than 60 percent last year to become one of the world’s worst performers.
Central Bank Governor Lamido Sanusi has made cleaning up the banking sector his top priority, while the new head of the Securities and Exchange Commission (SEC) has vowed tougher penalties for anyone infringing regulations.
Shobo said her firm had removed the option for clients not to publish ratings decisions in an effort to boost disclosure, meaning companies that seek ratings are obliged to publish the findings even if they are uncomfortable with the conclusions.
She said before the bailout, her firm rated 19 banks but only five of them chose to publish the results.