High interest rate, inflation to increase non-performing loans of Nigerian banks – Fitch report
Credit ratings agency, Fitch has projected that non-performing loans of Nigerian banks will increase in 2024 on the back of high interest rates and inflation in the country.
The agency stated this in its latest credit ratings report on Nigeria where it affirmed the country’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with a Positive Outlook.
According to the firm, the loan books of the banking sector at 35% of assets in the sector by the end of 2023 are low.
It stated, “Fitch expects the banking sector’s regulatory non-performing loans (end-1Q24: 5.1%) to increase in 2024 due to high inflation and interest rates. However, loan books are small (end-2023: 35% of banking sector assets).”
The report further referenced the CBN’s increase in capital requirement for banks that is meant to be completed by the end of the first quarter of 2026 together with the amendment of the 2020 finance act which imposed a 70% windfall levy on banks’ foreign exchange gains in 2023 and Q1, 2024. It noted that these decisions will not lead to capital adequacy ratio breaches.
Fitch in the report noted that it expected the MPR to rise again in the last quarter of 2024, alongside the ongoing use of prudential and operational tools like open market operations, with rates set near the MPR, aimed at improving the effectiveness of monetary policy transmission after prolonged financial repression.
What you should know
Nigeria’s inflation rate rose to 32.7% in September, reversing a two-month slowdown since July 2024, driven by higher petrol prices that pushed up transport costs. Food inflation for the month increased to 37.77% year-on-year, marking a 7.13 percentage point rise from 30.64% in September 2023.
- On a monthly basis, food inflation reached 2.64% in September 2024, up from 2.37% in August 2024, reflecting a 0.27% increase.
- Under Yemi Cardoso, the CBN raised the monetary policy rate (MPR) five times in an effort to curb inflation and promote economic stability. The first increase moved the rate from 18.75% to 22.75%, followed by subsequent hikes to 24.75%, 26.25%, and 26.75%, with the most recent adjustment in September 2024 when the Monetary Policy Committee (MPC) raised it by 50 basis points to 27.25%.
- These cumulative increases, totaling 850 basis points since Cardoso’s tenure began, aim to address Nigeria’s persistent inflation challenges, particularly in core and food inflation.
