S&P: Nigeria’s Economic Growth Will Spur Banks Expansion

Standard & Poor’s (S &P), American-based financial services company has said that the political stability and economic growth recorded by Nigeria will spur expansion in the country’s banking industry this year.

Bloomberg quoted S&P analysts, led by Matthew Pirnie in Johannesburg to have said in a report yesterday that: “Nigerian banks have good prospects in 2013 thanks to strong economic growth and currently broad political stability.”

The firm added: “We believe the banks will enter an expansionary phase in 2013, spurred by increasing competition and relatively clean balance sheets.”

The Central Bank of Nigeria (CBN) had implemented banking reforms following a debt crisis in 2008 and 2009. The central bank fired eight chief executives and set up the Asset Management Corporation of Nigeria (AMCON) to buy non-performing loans and stabilise the industry. 
AMCON spent N5.6 trillion ($35 billion) in 2011 to acquire the debt, its Chief Executive Officer, Mr. Mustafa Chike-Obi, had said.

Nigeria’s economy would probably expand 6.8 percent this year, compared with an estimated 6.6 percent in 2012, the National Bureau of Statistics said last month.

For lenders, “such expansion carries risks, however, including a dilution of capital if loans are extended rapidly,” said S&P.

“Credit risks may mount, too, exacerbating the risk of foreign-currency lending, real-estate price bubbles, and corporate concentrations, although we don’t believe these risks are likely to materialise this year,” it added.

“Corporate governance is a long-standing constraint on ratings, and low transparency would in our view raise risks,” according to S&P. “Nigeria’s narrow economic structure also exposes the economy, and the banking sector, to a fall in oil prices or production.”

Author: nmmin

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