Fitch Ratings has projected a faster increase in bad loans in Nigerian banks due to the latest depreciation of the Naira.
The global rating agency stated this in a statement.
Fitch said: “The Nigerian naira was recently devalued sharply (end-2023: 899/USD; 13 February: 1,516/USD; about 40% devaluation), exceeding our expectations of a more moderate depreciation in 2024.
“The large devaluation is the second within a year (70% devaluation since end-2022) and has converged the official exchange rate with the parallel market rate.
“The continued move away from a longstanding managed exchange rate regime is conducive to restoring capital inflows and reducing foreign-currency (FC) shortages that have weighed on economic activity in recent years.
“However, it creates short-term macroeconomic risks, such as accentuating already-high inflation (December 2023: 29% yoy) that may weigh on economic growth, heightening loan quality and capital pressures already facing the banking sector.
“Fitch now expects the banking sector’s impaired loans (Stage 3 loans) ratio to increase at a faster pace than before the devaluation, which itself has caused already material FC-denominated problem loans (Stage 2 and Stage 3 loans; predominantly oil and gas sector loans) to have inflated relative to gross loans and core capital and accentuated credit concentration risks.”
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