Fitch: Nigeria’s Economy’ll Grow By 2.6% In 2017

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Barely a week after the International Monetary Fund (IMF) projected that Nigeria’s economy will exit recession by growing by 0.6 per cent in 2017, international credit rating agency, Fitch Ratings, has forecast a recovery of 2.6 per cent for the country’s economy next year. In a statement released yesterday, Fitch said: “We expect real Gross Domestic Product (GDP) to contract by 1 per cent in 2016, against our previous forecast of 1.5 per cent expansion.

We do expect a limited bounce-back and our 2017 forecast foresees a recovery to 2.6 per cent.” The agency, however, said its medium-term growth outlook for the country was still lower than the 5.6per cent growth of 2010-2014. It predicted that banks’ Non- Performing Loans (NPLs), which have been rising since the beginning of the year, would continue to climb: “Because operating conditions remain difficult.”

According to Fitch, while the Central Bank of Nigeria’s (CBN) latest financial stability report shows that banks’ NPLs rose to 11.7per cent of gross loans at end-June 2016 from 5.3 per cent at end-2015 and exceeding its start-of-year expectations for a 10 per cent NPL ratio by end- 2016: “the bad loans are not evenly spread among banks and sector NPL ratios are distorted by some exceptionally high concentrations.”

Consequently, it stated : “Some tolerance remains on NPL ratios for the banks’ Viability Ratings, which are all in the ‘b’ range. Other key concerns are tightening Foreign Currency (FC) liquidity, weakening Capital Adequacy Ratios and the sovereign’s ability to support banks, given its weaker financial flexibility.”

The agency pointed out: “The industry’s NPLs would have been higher if banks had not undertaken widespread restructuring of loans to the oil and gas sector, which accounts for 30 per cent of total sector loans. Asset-quality indicators in these portfolios are therefore holding up as borrowers are able to comply with generous loan maturity extensions.”

Fitch averred that with the Nigerian economy remaining in recession, it would be difficult for banks to curb rising bad debts. Significantly, it said: “If current challenges do not ease, the banks could face further downgrades.

Our discussions with banks indicate that most impairments are concentrated in the private sector, which is affected by foreign currency shortages and the depreciation of the naira. Borrowers are struggling to access scarce FX and those dependent on naira income are finding it hard to meet escalating repayment costs triggered by the depreciation.”

Source: New Telegraph

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