Earnings of Nigerian banks have been projected to reduce this year (2020) following the outbreak of Coronavirus which forced Guaranty Trust Bank, Zenith Bank, Access Bank, United Bank for Africa (UBA) and many other banks to close most of their branches and conduct skeletal operation at others
According to a report by investment firm, Afrinvest, the COVID-19 pandemic will negatively impact the books of the banks, reducing gross earnings, while cash output will rise due to policy by the Central Bank of Nigeria (CBN).
AllNews had reported that the loan to deposit ratio (LDR) rate of 65 percent United by the CBN on the banks will increase the level of loan approved by the banks to manufacturing sector, as the bank regulator sanctions banks that fail to meet the 65 percent.
The CBN fine the banks that default on the LDR by taking more cash from them through cash reserve ratio (CRR) - this will therefore reduce the total cash held by the bank which defaults. But aside from having to worry about the LDR, banks are also expected to struggle with impact of COVID-19.
In the report, 'The 2020 Nigerian Banking Sector Report’ by Afrinvest, the investment firm said restructuring of bad loan will reduce interest rate, which will in turn affect the income of Nigerian banks during the COVID-19 era, as non-binding businesses were also financially affected, thereby, making it impossible for some loan to be paid.
The report also stated that, "The combined effect of higher impairment charges and forex losses and the low yield environment (loan and investment securities) amid higher operating expense (OPEX) charges could lead to a steep decline in the bottom lines of Nigerian banks in the short term."
“We also note that the rates in the fixed income market have compressed significantly due to robust liquidity positions, thus driving yields on investment securities lower,” the report read.
“In our view, we believe that non-interest income could be the major game changer for toppling growth in 2020 as interest income comes under pressure.
“However, the firm noted that asset quality deterioration could weaken earnings growth and other key financial metrics such as return on equity and return on assets."