Agusto & Co. posits that the year 2021 will be a year of two halves for the Nigerian Banking Industry and the economy at large. The lingering adverse impact of the pandemic, exacerbated by the second wave, is expected to dominate the first half of the year.
However, mass vaccination, clarity on OPEC’s pricing strategy, and a better understanding of the coronavirus are expected to moderate the headwinds in the second half of the year. In our view, the year will be a mixed bag for the industry and this will be reflected in its asset quality, earnings, liquidity, and capital position.
Asset Quality
Agusto & Co. anticipates a 12%-15% growth in the Industry’s loan book in 2021, buoyed by naira devaluation and the CBN intervention funds. The pressure to meet up with the minimum loan-to-deposit ratio (LDR) and risk assets created by the relatively new banks (those licensed in the last six years) will further support loan growth in the year…
Earnings
Agusto & Co. expects a gradual increase in interest rates, particularly in the second half of the year. Thus, we anticipate a 56% net interest spread, higher than the 50.1% estimated for FY 2020, given that loan pricing is more sensitive to upward movements than funding costs. Net earnings will also benefit from debt instruments (bonds and commercial papers) issued by banks at record low-interest rates in 2020, coupled with the expected 400 basis points increase in the pricing for intervention loans by March 2021.
Liquidity
We expect a significant improvement in the Industry’s foreign currency liquidity position in 2021.
Capital
The banking industry’s capital was pressured in 2020 by additional provisions elicited by the deterioration in most macroeconomic variables. However, long term bonds issued by some banks provided a capital buffer. In 2021, we expect this trend to continue to support capital, provide liquidity and reduce the asset-liability mismatches on the balance sheet…
Download 2021 Outlook for the Nigerian Banking Industry Report here
