Afrinvest Foresees 15% Growth for Banking Sector in 2022, Cautions FG on Debt

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Analysts at Afrinvest (West Africa) Limited have projected that the Nigerian banking sector which has remained resilient amidst the pandemic would grow by 15 per cent next year.

In the same vein, the research and investment company has called for more banks to merge in the sector, noting that the tier one banks – Access Bank, Zenith Bank, GTBank, First Bank, United Bank for Africa – presently control approximately 70 per cent of banking activities.

The Deputy Managing Director, Afrinvest West Africa Limited, Victor Ndukauba, said this yesterday, while unveiling the Lagos-based firm’s 2021 Nigerian Banking Sector Report titled, ‘Resilience Amidst Endemic and Pandemic Constraints.’

Speaking on the banking sector and its outlook, he said: “The banking sector saw a dip in 2018, obviously following a cut back by banks, who are trying to contain the operation from the effect of the recession of 2016, that sort of spilled over into 2017. But otherwise, it’s been growth consistently.

“Tier-one banks accounting for a sizable portion of the total assets. From what we estimate for year 2021, we think includes that nearly N25 trillion loans, up 24 per cent on last year’s numbers, and we expect a further 10.3 per cent growth into 2022.

“Also, the total industry deposits, we can see that we’ve gone from N17.8 trillion in 2016, and expect to close 2021 at N46 trillion and with a projection of 8.4 per cent growth will take us to about N50 trillion by the end of 2022.

“Again, consistent with the other two metrics, you see that the tier one banks continue to control a significant portion of the industry, business and you know, balance sheet.”

He added: “So, I guess what has to be said clearly is that there is some value to consolidation and scale clearly, because when we look at shareholders’ funds, which is essentially the value that has been created by these banks for shareholders over time, you can see that again, tier one banks continue to be the dominant force here nearly 70 per cent of the industry in value creation.”

Also, Ndukauba, in his presentation noted that the current rate at which the federal government was borrowing was not sustainable. He noted that the federal government’s borrowing had tripled by five times in the past five years since the beginning of this administration.

He said: “Revenues have underperformed by these 30 per cent, the income from oil and gas has worsen, at 44 per cent, non-oil income is up slightly at four and a half percent, while independent revenues up 10 per cent and government owned enterprises down nearly 62 per cent. So on the revenue side, clearly, there is a challenge. We’re not tracking what was planned or expected.

“So, in order to keep up with the significant ramp up in spending, the government has had to obviously do a lot more in terms of borrowings, as well as something here that is captured as ways and means which is effectively the central bank providing liquidity in the form of lending or just a stopgap measure to help plug water the shortfalls.

“And what we can see clearly is that we have a rising debt situation. So aggregate debt N16.8 trillion as of 2016, but between then, and now we’re almost at three times that level, with a total of nearly N48 trillion.”

He noted that the debt service ratio which also grew from 45 per cent in 2016, to 83 per cent, was unsustainable.

He added: “We can see that we’ve gone from debt service ratio of about 45 per cent in 2016, to 77 per cent based on our estimates for 2021. Those numbers are higher in 2020 at nearly 83 per cent. So what it means is that for every naira or revenue you’re spending nearly at 80k to service debt. Clearly that is not sustainable.”

In his keynote address at the event, Partner & Chief Economist, PwC Nigeria, Andrew Nevin, noted that the Nigerian economy was stable and predicted sustained growth.

He said: “I have never been more optimistic about Nigeria in the 13 years that I’ve been here than I am today. Despite the fact that every one of us is well aware of all of the challenges in the country in the last two or three years, I’m optimistic and confronted by incredible things going around the country that aren’t necessarily seen by the official statistics.”

In his contribution, the Chief Executive Officer, Centre for the promotion of Private Enterprise (CPPE), Dr. Muda Yusuf noted that manufacturers were still constrained by access to foreign exchange.

He said, “The bigger issue of manufacturers as well as investors of the real economy is the FX issue because even for some manufacturers who had access to the CBN facility, they could not access foreign exchange to utilise the facility and so it is affecting everything. Secondly the issue is the illiquidity in the foreign exchange market.”

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