Banks in Lebanon and South Africa will be under increasing sovereign debt-related pressure; Nigerian lenders will face fines if they do not expand their loan books; and smaller Qatari banks will have to take steps to deal with deteriorating asset quality related to the economic blockade.
Asset quality a worry in Qatar
Qatar has, from an economic perspective, navigated the blockade by four former allies with relative ease. But although the central bank has injected about $40 billion into the banking system, there are hints that the sector is under strain, especially smaller lenders.
In 2019, S&P Global Ratings warned of asset quality concerns and rising credit losses. At the start of 2020, there are signs of deteriorating asset quality, according to S&P Global Market Intelligence data, with Qatar Islamic Bank QPSC, Masraf Al Rayan QPSC, Ahli Bank QPSC and Qatar International Islamic Bank (QPSC) all posting year-over-year increases in stage 2 underperforming loans. The country's largest lender by assets, Qatar National Bank (QPSC), also recorded an uptick in stage 2 underperforming loans through 2019.
Meanwhile, Doha Bank QPSC's corporate nonperforming loan ratio has nearly doubled since 2016, reaching 8.1% in the third quarter of 2019.
Lebanese lenders face capital hikes
Although Lebanese banks have long outperformed relative to the domestic economy, their troubles are mounting as the country finds itself mired in an "economic emergency" and a political crisis.
Amid declining half-year profits at the four biggest banks — Byblos Bank SAL, Bank Audi SAL, Byblos Bank SAL and Bank of Beirut SAL — regulators have instructed lenders to increase their common equity Tier 1 capital by 20% from pre-2019 crisis levels. Byblos Bank said banks' aggregate CET1 totaled $18.7 billion at 2018-end, which means they will have to raise their combined CET1 by $3.7 billion by the June 2020 deadline.
Political and financial turmoil has been simmering for years, with Lebanon unable to form a lasting government amid mounting state debts, twin deficits and growing fears the local currency's dollar peg could collapse. Adding to the malaise, Bank Audi denied charges from a regional prosecutor that the lender had made illicit gains on housing loans.
South African banks brace for sovereign downgrade
S&P Global Ratings revised its outlook on South Africa and South African banks to negative from stable in late November amid weak economic fundamentals, with economists cutting their 2019 growth forecasts, GDP growth stalling and unemployment soaring to a 16-year high.
The ratings outlook change applies to FirstRand Ltd., Nedbank Group Ltd., Investec Bank Ltd., Capitec Bank Holdings Ltd. and African Bank Ltd. Yet the country's banks have proved resilient in a tough market where in percentage terms annual economic growth is likely to lag population growth for a sixth straight year.
The outlook downgrade "doesn’t mean a change in risk appetite for lenders," said Patrice Rassou, head of equities at Cape Town's Sanlam Investment Management. Rassou said that, were South Africa's credit ratings to be downgraded, the impact on the banking sector would be relatively short term. "We're trading as if we've been downgraded," he said.
Nigeria banks pushed to expand lending
Nigeria's central bank is ratcheting up the pressure on banks to expand their lending in a bid to bolster economic growth. Banks face penalties for failing to meet lending objectives, while running the risk of increasing toxic debt as they build their loan books.
Banks were instructed to increase their loan-to-deposit ratios to 65% by 2019-end, which followed a similar directive to raise this ratio to at least 60% by the end of September.
Central bank data indicates the prior edict is having an effect, with the banks' combined loan book rising 5.3% — or 1.17 trillion naira — in the four months to Sept. 30. So far, more aggressive lending has yet to translate into higher NPLs, with the banking sector's combined NPL ratio standing at 6.6% as of October 2019, down from 14.1% a year earlier.
As of Jan. 6, US$1 was equivalent to 362.25 Nigerian naira.