Amaka Obiefuna.

Renowned rating agency, Fitch on Wednesday explained why Nigerian banks will face further challenges in 2017, following an extremely difficult 2016.

The organisation in its Peer Review reports said the slow economic growth, low risk appetite from banks to translate into subdued credit growth and weak core earnings generation in 2017 were likely things to experience.

“The outlook for the rest of 2017 is not much brighter. We believe that the banks will continue to face extremely tight FC (Foreign Currency) liquidity despite the authorities’ best efforts to normalise the foreign-exchange (FX) interbank market and improve the supply of US dollars”, it said.

The London-based rating agency said consequently banks struggled with declining operating profitability (excluding translation gains), sluggish credit growth, fast asset quality deterioration, tight FC liquidity and weakening capitalisation, putting increasing pressure on their credit profiles.

Fitch stated that: “Fast asset quality deterioration is in line with our expectations given the macro challenges and the continuing issues in the oil-sector. Oil-related impaired loans (NPLs) are high and this excludes large volumes of restructured loans.

“Other industry sectors contributing to NPLs include general commerce and trading, which have been affected by both the naira depreciation and FC shortages.

“Following a reassessment of potential sovereign support available to the banks in 2016, Fitch believes that sovereign support cannot be relied on given Nigeria’s (B+/Negative) weak ability to do so in foreign currency.

“As a consequence, we removed sovereign support from the Long-Term Issuer Default Ratings (IDRs).

“Overall, the largest Nigerian banks with stronger and more diverse business models, high revenue-generating capacity and stronger liquidity profiles appear to be coping better than smaller banks on most metrics.

“However, tail risks remain high for all banks due to their sensitivity to concentration risk.”