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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