The Nigerian banking sector’s profit fell by 28.4 per cent in the 2015 financial year, the just released Afrinvest 2016 Banking Sector Report showed.

The report, released in Lagos on Wednesday, indicated that foreign exchange volatility and lower oil price led to a major decline in the fortune of the sector.

The report read, “The resilience of the Nigerian banking sector was put to the test as elevated risk concerns triggered a spike in NPL ratio and slowed the pace of credit expansion dramatically. Gross loans and advances dipped by 1.9 per cent in 2015 across our coverage universe compared to the 26.6 per cent growth in 2014 as lower oil prices, FX volatility and liquidity concerns dampened risk appetite amidst a hazy economic road map.

“Thus, growth in industry gross earnings moderated to 10.3 per cent in 2015 (compared to 14.6 per cent in 2014). At the same time, liquidity in the banking system (especially among Tier-2 banks) was pressured by the TSA implementation, which sterilised approximately N1.2tn from the banking system.”

It further stated, “As a result, sector profitability was depressed in 2015 with profit before tax tumbling by 28.4 per cent year-on-year as industry NPL ratio spiked to 4.9 per cent from three per cent in 2014.

“Furthermore, return on equity moderated to 9.1 per cent from 15.5 per cent in 2014. Capital adequacy ratio was strained on account of revised computation guidelines and increase in general loan loss provisioning, settling at 16.5 per cent in 2015 (relative to 19.7 per cent in 2014). Total deposits dipped by 1.8 per cent to N20.7tn, while total assets (+3.3 per cent ) and liabilities (+1.1 per cent) increased.”

Commenting on the report, the Group Managing Director, Afrinvest, Mr. Ike Chioke, said, “Our assessment of performance indicators in the Nigerian banking space indicated that performance softened in 2015 as events in the socio-political, economic and regulatory environment heightened risk consciousness, slowed the pace of credit expansion, deteriorated asset quality and weakened earnings capacity across all tiers in the sector.”

The report read in part, “Against the backdrop of lower oil prices, which have weakened macroeconomic fundamentals, the outlook for the sector in 2016 was expected to be dominated by developments in the FX market. Accordingly, we identify risk areas for Nigerian banks to include: credit exposure to high risk sectors; default risk arising from general commerce and manufacturing due to liquidity challenges in the FX market; credit concentration risk emanating from upstream oil and gas loans due to lower oil price; potential default risk arising from power asset loans, which are predominantly denominated in United States dollar; pressure on Capital Adequacy Ratio in the aftermath of the depreciation of the naira; and restrained appetite for both sovereign and corporate Eurobonds.

“The report highlighted expectations for the performance of the banking sector as risk assets to expand nominally due to currency adjustment. Although real loan growth is expected to be muted in 2016, the 29.1 per cent effective devaluation of the local unit will translate into a circa 15 per cent nominal expansion in industry loan book given the significant 37 per cent foreign currency denominated risk asset exposure as at FY 2015.”

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The nation’s electricity woes may worsen in the coming weeks as liquidity and gas supply issues are threatening the operation of its biggest power station, Egbin.

The Managing Director and Chief Executive Officer, Egbin Power Plc, Mr. Dallas Peavey Jr., told our correspondent in an exclusive interview that the owners of the plant might be forced to consider shutting it down if the challenges remain unresolved.

Egbin, which is located in Lagos, was acquired in 2013 by Kepco Energy Resource Limited in collaboration with its technical partner, Korea Electric Power Corporation, during the privatisation of the successor companies carved out of the defunct Power Holding Company of Nigeria.

Asked if the company had any challenge in paying gas suppliers, he said, “We do because we are owed N86bn and we in turn owe the gas suppliers approximately N30bn. We are working on payment plans.

“We think if this is not addressed in the next couple of weeks, we are going to take the hard look at shutting down, because we can’t afford running it any longer. That’s a dire prediction.”

Peavey said the company owed banks $325m as it had to borrow to overhaul the plant after it was acquired to enable it to operate at its installed capacity of 1,320 megawatts.

Generation from Egbin was said to be limited to 383MW on Wednesday due to gas constraints, compared to 1,085MW on March 15, according to industry data obtained by our correspondent. The plant hit a record low of 246MW on last Saturday from 425MW on Friday.

Its unit ST1 was said to have tripped on generator CB trouble; ST2, 3 and 5 not on spinning reserve due to Egbin G/S management decision, while the ST4 was out due to gas constraints.

“Right now, because of gas and transmission issues, we only have three of our six units running. Each one of our units can produce 220MW. For a megawatt, that is about 100,000 people that it provides power for,” Peavey said.

The Egbin CEO, who spoke with our correspondent shortly before the nation recorded its latest total system collapse on September 16, said, “We are helping to stabilise the national grid. If you notice, over the last six weeks, we haven’t had a grid failure or system collapse because of Egbin.

“Egbin is the sole reason there has not been a total system collapse in the nation, because we regulate everything coming to Lagos all the way to Abuja and farther north.”

Out of the six power stations meant to provide spinning reserves, only one had actual reserve of 9.4MW as of 6am on Wednesday, September 21, down from 17.4MW on Sunday and 30.4MW on September 10.

The power stations are Egbin, Kainji, Delta, Olorunsogo II, Geregu II and Omotosho II, with a combined reserve capacity of 235MW.

The reserve capacities and actual reserve of Egbin and Kainji stood at zero as of Wednesday, while those of Delta were 80MW and zero, respectively.

This year, the nation’s power grid has so far recorded 22 collapses – 16 total and five partial – up from 13 and 10 in the whole of 2014 and 2015, respectively.

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The country needs $15bn from asset sales and borrowing to revive the slumping economy and boost foreign reserves, according to Africa’s richest man, Aliko Dangote.

Dangote said in a Bloomberg TV interview at the US-Africa Business Forum in New York on Wednesday, “Through sales of assets, through loans from the Bank of China or wherever, we need something like $15bn. We’re having a problem as the reserves are low. The banks, entrepreneurs and everybody is speculating on the currency.”

Nigeria’s economy, battered by low oil prices and a dearth of foreign investment, is set to shrink in 2016 for the first time in 25 years, according to the International Monetary Fund, which forecasts a 1.8 per cent contraction.

The foreign reserves have fallen by more than a third since the end of September 2014 to more than 10-year low of $24.8bn. The naira has fallen almost 40 per cent against the dollar this year.

President Muhammadu Buhari’s government is trying to spend a record budget of N6.1tn to stimulate growth. The country plans to raise about $4.5bn of concessional loans and Eurobonds this year to help pay for the spending plans.

The President, according to Dangote, is making good on his promise to tackle corruption.

“President Buhari is doing a great job in terms of fighting corruption. Corruption has gone down dramatically,” he said.

The Emir of Kano, Muhammadu Sanusi II, on Wednesday joined the list of eminent Nigerians calling for sale of state assets to get the much-needed foreign exchange and shore up the nation’s fast-depleting external reserves.

Sanusi, who spoke in Lagos as the special guest at the launch of the 2016 Afrinvest Banking Sector Report, said, “One option is to sell down some assets; sell down some refineries in a manner that does not hurt your strategic interest; sell down some oil assets; sell down some refineries in a transparent manner that gives you value. You can also have options to buy them back later. You should expect basically forex.”

He also backed the Central Bank of Nigeria’s Monetary Policy Committee’s decision to keep the lending rate unchanged, praising it for not yielding to political pressure to increase the benchmark lending rate.

Sanusi said, “I think it is a positive thing when the fiscal authorities and the many people in the private sector said they wanted a lower rate of interest rate. I was concerned that the CBN would succumb to pressure.

“And the fact that the CBN did not succumb to the pressure is a fact that it is beginning to claim its independence, which is a very positive thing.

“And these are economic questions, you make choices. I can see why the CBN does not want to lower the interest rate at this time. If you lower the MPR by 100 or 200 basis points today, it is not going to lead to rapid increase in credit growth.

“You will not see an increase in credit growth that will reverse the downward trend in output by lowering the MPR by 100 or 200 per cent. You will, however, further fuel inflation, and you will reduce the yield in fixed income at a time you are trying to attract foreign exchange.

According to him, the economy is in a crisis and requires forex to survive, adding that the fiscal and monetary authorities must do everything to attract forex into the country.

In doing this, the emir said the CBN must demonstrate courage to implement the foreign exchange policy to the full.

He said, “The immediate oxygen that this economy needs is forex, because before you talk about long-term structural issues of power and refineries, you do need forex coming into this economy and portfolio investments are important.

“The CBN got the decision right, adopting a flexible exchange rate, and secondly, tightening monetary policy.

“But do we really have a flexible exchange rate? We need the CBN to take that risk and courage to implement the flexible foreign exchange policy. Let the market work in the next two or three weeks and see as people know they can come in, sell their dollars, buy stocks, sell their dollars and fixed income, make a profit in currency and capital acquisition; you are going to have gradually narrowing of the gap between the interbank and the parallel rates and have more liquidity in the market.”

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