Nigeria's banks expand lending as economy keeps ticking despite pandemic

Nigeria's four largest banks by assets reported a rise in third-quarter 2020 lending as the economy weathered the pandemic better than many of its peers on the continent, according to S&P Global Market Intelligence data.

Ahead of fourth-quarter results, Zenith Bank PLC said it expects to "remain resilient" in the final quarter, while Access Bank PLC said it is focused on the growth of its retail banking business and the expansion of its African footprint.

Zenith Bank's net loans and advances rose 17% year over year to 2.9 trillion nairas in the third quarter, while Access Bank increased its lending 15% to 3.5 trillion nairas. FBN Holdings PLC's lending was up 10.5% to 2.1 trillion nairas and United Bank for Africa PLC's increased to 2.4 trillion nairas.

Banks in Nigeria have been expanding lending to meet a central bank order to raise their loan-to-deposit ratios to 65%.

Restructuring loans

At May 2020-end, 17 banks in Nigeria requested to restructure more than 32,000 pandemic-related loans, equivalent to 32.94% of the sector's total industry loan book, according to the Nigerian central bank.

"Results from ongoing impact assessments of COVID-19 effects on impairment by banks indicate a modest impact given regulatory policy measures already implemented," the central bank said.

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In Nigeria, Africa's biggest oil producer, lenders are heavily exposed to the energy sector. In April 2020, credit to the oil and gas sector accounted for 26% of the banking industry's total loans, the regulator said. In the third quarter, Zenith Bank had total restructured loans worth 527.42 billion nairas, with oil and gas companies accounting for 68.97% of its loan book.

Zenith Bank's third-quarter net income rose quarter over quarter, Access Bank and United Bank for Africa posted a sharp rise in quarter-over-quarter net income. The results show the resilience of the country's economy compared to its peers amid the pandemic.

Nigeria and Kenya's GDP rose in 2020 compared to 2019, while South Africa's GDP dipped.

Uncertain conditions

S&P Global Ratings expects operating conditions for the Nigerian banking sector to remain uncertain in the aftermath of the 2020 oil price shock and because of the impact of the pandemic on the economy.

The banking sector is exposed to high credit risk because of Nigeria's reliance on oil and its sensitivity to currency depreciation and high inflation, the agency said.

As of Jan. 25, US$1 was equivalent to 380.99 Nigerian nairas.