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Market Digest Nigeria

Finance

Profitability & asset quality of Nigerian Banks threatened by 23% of their loans —Agusto

BANKS

Agusto & Co. Limited has said 23 per cent of banking sector loans poses threat to the industry’s asset quality and future profitability. It said this in its 2020 banking industry report.

Agusto & Co. Limited

The report said, “Approximately 23 per cent of the industry’s gross loans and advances was classified in the stage two category as at 31 December 2019, according to the International Financial Reporting Standard 9.

“As at the same date, four out of the twenty-four banks covered in the report had stage two loans to gross loans ratios above the 23 per cent industry’s average.

“Agusto & Co. believes that the volume of stage-two loans is a threat to the industry’s asset quality and future profitability.

“Stage-two loans primarily comprise exposures with an increase in the associated credit risk compared to when the loan was disbursed.”

The report said COVID-19 pandemic with its impact on businesses had elicited an increase in the volume of stage-two loans.

According to Agusto & Co, stage-two loans were susceptible to adverse migrations in the face of a prolonged macroeconomic downturn.

Following the forbearance granted by the Central Bank of Nigeria in March 2020 permitting banks to restructure loans to businesses that had been adversely impacted by the COVID-19 pandemic, it stated that the banking industry had restructured over N7.8tn (almost half) of the loan portfolio as at June 2020, according to the CBN.

Agusto & Co, however, expressed concern over the performance of the affected loans, given that the coronavirus pandemic was yet to be curtailed and a second wave may be looming.

It said a further slowdown in economic activities and a total lockdown might worsen an already bad situation.

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