Nigeria: Report Expresses Worry Over Nigeria’s N38tn Debt

Analysts at Afrinvest West Africa Limited have reiterated the need for the federal government to be concerned about the country’s rising debt profile, saying it is becoming unsustainable.

The Group Managing Director, Afrinvest West Africa, Mr. Ike Chioke, expressed concern about the nation’s debt stock during the presentation of the Afrinvest 2020 Nigerian Banking Sector Report titled: ‘The insecurity challenges of poverty,’ which was launched yesterday.

The report also showed that the Nigerian banking sector is stable and has been positioned for growth with the total banking assets predicted to grow by 14.3 per cent to N54.3 trillion by 2020, with further growth projection in 2021.

Commenting on the country’s debt profile, Chioke said: “Our debt position has risen from N15.7 trillion in 2016 to now approaching N38 trillion estimated at 2020. Another part of the component of debt, which is often not visible to most people, is the ways and means, which is the Central Bank of Nigeria printing money and giving to the government and that has also risen dramatically from N2.2 trillion in 2016, and is currently estimated at N10 trillion in 2020.

“They are very worrying numbers because you can see that the federal government’s debt-to-GDP ratio is now at 28 per cent and while that may seem reasonable, by most accounts, it is more worrying when you look at debt sustainability and compare our debt service to revenue.

“In 2016, debt service to revenue was only 44.6 per cent and in 2020 we are looking at debt service to revenue of 84.8 per cent which is a very worrisome number indeed.”

On findings about the banking sector in the report, Chioke expressed optimism about the banking sector

He said: “Total industry asset, we are projecting that the industry would end the year with N54.3 trillion in assets, climbing 14.3 per cent from 2019. And in 2021, we are projecting a further growth to about N57.8 trillion in industry asset.

“In terms of industry deposits, we have seen it rise sharply following significant open market operations (OMO) maturities. So, this year we are looking at about N35.8 trillion of industry deposits and that would continue to climb to N38.1 trillion of deposits into 2021.”

Speaking about the CBN’s minimum loan-to-deposit ratio policy, he said: “When you look at the loan-to-deposit ratio, the CBN threshold is at 65 per cent and quite a number of the tier 1 banks are below that threshold except for Zenith Bank and when you come to the tier 2 banks, only Fidelity Bank, FCMB and Sterling Banks are above with Stanbic IBTC, Wema Bank and Unity Bank below.

“So, it tells that the banks are struggling to meet the requirements of this policy and we can understand that because when you look at numbers of NPLs based on first-half numbers you can see that with the threshold at five per cent.

“The CBN recommends bank should not exceed that, but quite a few banks have tended above that number.

“Ecobank’s non-performing loan is at 9.9 per cent, FBN Holdings at 8.8 per cent, GTBank’s is at 6.5 per cent and for tier 2 banks, Stanbic IBTC is at 5.2 per cent with the rest below the alignment.

“So that can be trouble because that would put into question the demand to increase loans due to LDR but you are doing it in the middle of a troubled economic environment, which means it is more difficult for the borrowers to perform on the loans.”

Also speaking at the event, Senior Vice President and Head of Financial Advisory at Africa Finance Corporation (AFC), Mr. Fola Fagbule, urged the federal government to work on improving investor’s confidence in order to attract foreign direct investments.

He said: “What we are dealing with in Nigeria is a crisis of confidence, which is beyond a collapse of global oil prices and COVID-19 pandemic as to reasons why we are having difficulties attracting capital.

“We have a fractured situation where there is not even confidence in the sovereign to start with and when you don’t have confidence in a financial arrangement in the way that the sovereign has set itself up to do business in the eyes of the world, domestic commercial market, local capital markets, you can imagine how hard it is for everybody else that is further down the hierarchy to establish that confidence.”


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