…As Bad loan rises further, hits N2.3trn in banking sector***
The Federal Government has secured a loan of $200 million to fund its electrification project.
The African Development Bank (AfDB) Group yesterday said it provided $150 million for the project. The balance of $50 million was issued from the Africa Growing Together Fund (AGTF) – a $2 billion facility sponsored by the People’s Bank of China.
A statement by the bank said: “The Board of Directors of AfDB Group has approved a $150 million sovereign loan to the Federal Government of Nigeria to finance the Nigeria Electrification Project (NEP).
“The AGTF, a $2 billion facility sponsored by the People’s Bank of China and administered by the AfDB, has also approved a $50 million loan to the Federal Government of Nigeria to co-finance the project.”
According to the statement, the joint financing is targetted at supporting the Federal Government’s efforts “to address critical energy access deficit in the country, and catalyse achievement of universal energy access by 2030 targets.”
Last year, the World Bank granted $350 million loan to the Federal Government for rural electrification projects.
The Managing Director, Rural Electrification Agency (REA), Damilola Ogunbiyi, said: “By supporting the electrification of unconnected and underserved communities, NEP will contribute materially to their economic development.
“Access to reliable, affordable and clean electricity will result in savings for households and businesses, which can be deployed to other uses.”
The government has 2020 target to generate up to 3,000 megawatts (Mw) of electricity with about 10,000 mini-grid projects to electrify communities in the country that are yet to get connected to the national grid.
In 2016, the Minister of Power, Works & Housing, Babatunde Fashola, said the government was ready to invest up to $150 million in rural electrification projects.
Fashola said the government plans to use 44 tertiary institutions and small hydro dams in the rural areas as anchors for the electrification programme.
He explained that the money would be deployed towards providing Independent Power Plants (IPPs), to supply electricity to tertiary institutions and rural communities.
The minister also identified 37 out of the 44 tertiary institutions to be used for the project as varsities and the other seven as teaching hospitals.
In the meantime, against the backdrop of a challenging operating environment the banking sector performance update shows escalating bad loans as businesses that borrowed money struggle to survive.
Consequently, the latest data from the National Bureau of Statistics, NBS, released yesterday has revealed that value of Non Performing Loans (NPLs) in the third quarter of 2018, Q3’18, increased by N400 billion or 21 percent to N2.3 trillion from N1.9 trillion in Q2’18 though it also indicated a slight four percent decline when compared to N2.4 trillion recorded in the corresponding period of 2017.
This corroborates the most recent report of global rating agency, Moody’s which warned that losses to bad loans remain high in Nigeria’s banking industry.
In its 2019 Outlook on African Banks, Moody’s stated that while Nigerian banks now enjoy improved foreign currency liquidity due to higher oil prices, they however face the challenge of rising loan quality.
The company said: “Higher oil prices and partial liberalisationof the foreign-exchange market have eased pressures on “unhedged” borrowers and normalized foreign-currency liquidity.
Asset risks nonetheless remain high as banks continue to tackle legacy issues; similarly, earnings remain under pressure as loss-loss provisions remain elevated. Capital buffers are strong for the bigger banks, but weaker for smaller bank.”
While affirming a ‘Stable’ outlook for African Banks, Moody’s highlighted risks to banks on the continent to include rising US interest rates and political uncertainty in some countries including Nigeria.
It stated: Our outlook for African banks is stable but risks are tilted to the downside though banking prospects remain strong over the longer term Risks to the operating environment relate to: Rising US interest rates leading to capital outflows across emerging markets, in conjunction with rising government debt and currency depreciation, could significantly harm banks’ loan quality and access to foreign currency; Political uncertainty and risk of social unrest are an ever-present challenge for Africa; South Africa, Tanzania, Nigeria are some of the countries that face such challenges, which could weaken investor and consumer confidence; External shocks such as falling commodity prices, drought, or an escalation of global trade wars, could hurt African corporates and their ability to repay debt.” Moody’s warning is coming on heels of similar concern expressed by its global rating companion, Fitch Ratings on the Nigerian banks.
In its latest credit rating for three Nigerian Tier-1 banks, namely Access Bank, GTBank and UBA, Fitch warned that Nigerian banks face pressure on margins and capital.
“The fragile economic recovery restrains banks’ growth prospects and asset quality. Operating conditions are still difficult for banks. “Despite stronger oil prices in second half of 2018 (H2’18) supporting economic growth, credit demand is weak and banks face pressure on margins and capital.
“Fitch believes that sovereign support to Nigerian banks cannot be relied on given Nigeria’s weak ability to provide support, particularly in foreign currency. In addition, there are no clear messages of support from the authorities regarding their willingness to support the banking system. “Therefore, the Support Rating Floor of all Nigerian banks is ‘No Floor’ and all Support Ratings are ‘5’.
This reflects our view that senior creditors cannot rely on receiving full and timely extraordinary support from the Nigerian sovereign if any of the banks become non-viable”, Fitch stated.
The Nation with additional report from Vanguard