Earlier, the National Bureau of Statistics (NBS) published selected Nigerian Banking sector data for Q2-2020. According to the report, the total value of credit allocated by Nigerian banks in Q2-2020 rose by 1.8% q/q – slower than the 7.6% q/q jump recorded in Q1-2020.
Specifically, credit to Mining & Quarrying (+8.8% q/q), Transportation & Storage (+7.3% q/q), Construction (+7.0% q/q), Agriculture (+5.9% q/q), and Oil & Gas (+5.8% q/q) sectors rose the fastest during the period.
Meanwhile, we noticed a q/q decline in credit to Government, Trade and Education amid low yield environment as well as the negative impact of lockdown measures on the sectors.
Despite the higher risk in the macroeconomic environment, the industry credit risk remained relatively stable as asset quality (depicted by the ratio of Non-Performing Loans (NPL) to Total Loans) mildly weaken from 6.39% in Q1-2020 to 6.41% in Q2-2020.
Similarly, the ratio of NPL’s to Total Loans (after specific provisions have been deducted) remained relatively flat at 6.9% in Q2-2020. Although, the industry
NPL ratio compares unfavourably to the maximum prudential threshold of 5.0%, it signifies an improvement when compared with Q2-2019’s 9.3%.
While this put the adequacy of loan loss provisioning into question and explains the broadly stable profit profile of Nigerian Banks compared to peers, we think the increased risk management structure of the sector, which as the fallout of the 2016 crisis, has been helpful, despite efforts by the authorities to boost.
United Capital Research