International credit rating agency Fitch Ratings has predicted a challenging operating economic environment for Nigerian banks in the coming year.
The company disclosed this in its African Banks Outlook 2025 report published on its website.
A drop in commodity prices will affect banks
The rating firm said African banks will remain exposed to local and global operating environment risks. While most countries show strong resilience, a fall in commodity prices is highly likely.
Fitch stated that reduced interest rates may drive demand for credit and, coupled with volatile exchange rates, support confidence and investments.
It predicted that asset quality risks would remain high, with households and businesses being affected by high inflation and interest rates.
According to the report, most banks could tackle asset quality risks via robust pre-impairment profits from high interest rates, loan growth, substantial non-interest income, and strong operating efficiency.
The report, which Legit.ng saw, said bank performances will remain solid but expect them to drop marginally in countries where lower interest rates will bring lower yields on government securities.
“Capitalisation, funding, and liquidity should remain comfortable in most markets,” it said.
The volatile exchange rate will affect banks.
It said African banks would be exposed to high risks via sovereign debt distress because many sovereigns face high debt-servicing burdens.
Fitch Ratings stated that Nigeria’s prospects for credit status have improved due to President Bola Tinubu’s government pursuing orthodox economic plans.
It stated that despite reforms being introduced in the FX market, the policy remains affected by a lack of transparency in many areas.
Nigerian banks race to beat CBN deadline
The rating company said the difference between the official and parallel market rates has re-emerged, slowing down reforms.
The report came amid plans by Nigerian banks to recapitalise following a directive by the Central Bank of Nigeria (CBN).
The banks have been in a race of their lives to raise the needed capital to meet CBN’s demand and on schedule.
The apex bank noted that the banks need to be robust enough to support the planned $1 trillion economy envisioned by the current government.
6 most profitable banks in Nigeria in 2024
Legit.ng previously reported that six Nigerian banks released their financials, showing impressive performance for the half-year ending June 30, 2024.
The banks posted a profit before tax of N979.19 billion, representing a 133% increase relative to the N421.04 billion reported in 2023.
The banks are Ecobank, First Bank, Wema Bank, Jaiz Bank, FCMB, and Sterling Bank.
