Jacob Ajekigbe, former CEO of First Bank of Nigeria, told the Chartered Institute of Bankers of Nigeria that the credit crunch in developed markets had led to a reduction and repricing of credit lines by foreign banks. If not managed well, this could have severe consequences.
Nigeria’s banks have boomed in the past four years as a result of consolidation in the sector, big foreign investment and a buoyant, oil-driven economy. But the recent drop in the price of oil, a sharp fall in investment from foreign banks and a collapse in the Nigerian Stock Exchange has sparked concerns over the stability of the sector. Mr Ajekigbe said falling oil prices would translate into dwindling revenue for the government – which in turn meant fewer deposits for the banks, all of whom depend on the public sector for the bulk of their liabilities.
Research firm Business Monitor International says that despite the bank sector’s strengths, there was a risk it could suffer from bankruptcies, bail-outs and consolidations in the next two years. “Nigerian banks are facing a home-grown credit crunch due to excessive margin lending, whereby investors borrowed from banks to invest in Nigeria’s stock market,” the firm said.
The Central Bank of Nigeria has estimated that total bank margin loans amount to N716bn ($4.8bn), but some believe the true extent could reach N1400bn.
“The key problem is that the Nigerian All-Share Index has slumped by more than 58% since its peak in March 2008. Against such heavy losses, some Nigerian financial institutions will never see their margin loans again and possibly face significant write-offs in their assets,” said Business Monitor International.
