Nigeria’s banks not getting fair deal from regulators during pandemic - Fitch

Leading global rating agency, Fitch Ratings, has said the Central Bank of Nigeria punishes rather than help banks through the crisis caused by the coronavirus crisis.

“The Central Bank of Nigeria has been highly interventionist,” Mahin Dissanayake, senior director for Europe, Middle East and Africa bank ratings at Fitch, said in an interview.

Bloomberg reports that where peers like South Africa and Kenya followed the global trend of giving banks more room to lend, Nigeria hasn’t budged. Instead, it stuck with a cash reserve ratio that compels lenders to park 27.5% of their deposits with the central bank.

“The CRR is unique and hugely punitive,” said Dissanayake. The regulation is aimed at reducing the amount of money in the financial system to keep inflation in check.

Leaving cash idle in a non-interest bearing account pressures earnings, he said, because the cash could’ve been put to better use, like lending. Failure to meet the threshold results in the regulator debiting banks’ accounts with the shortfall.

The central bank also dips into the accounts when banks miss a target to extend 65% of their deposits as loans, a measure aimed at stimulating credit. This and other penalties push the effective hit on capital to between 40% and 50%, Dissanayake said.

The rules “are aimed at two different monetary policies,” he said. “They are conflicting.”

A spokesman for Nigeria’s central bank didn’t respond to a text message seeking comment that he requested.

Fitch revised its outlook for Nigerian banks to negative toward the end of last year as the economy started slowing and the central bank ramped up intervention.
‘Economic Shocks’

“Nigerian banks compared to other markets operate in a volatile environment,” Dissanayake said. “The banks have to deal with economic shocks, short credit cycles, and persistent problems in the oil sector. They also have to deal with policy actions, policy uncertainty and regulatory risks.”

There are some positives. Having about 21 major banks serve a population of about 200 million in a $450 billion economy gives lenders a solid market position, he said. This strong revenue-generating capacity allows banks to absorb the higher cost of risk even when income from interest charges on loans deteriorate.