Nigerian banks face near-term credit risks from regional expansion —Fitch Ratings - The Source

ADVERTISEMENT
  • Landing Page
  • Shop
  • Contact
  • Buy JNews
  • Login
The Source
  • Home
  • News
  • Politics
  • Education
  • Entertainment
  • Opinions
  • Business
  • Sports
  • Crime
  • World News
  • Parliament
No Result
View All Result
  • Home
  • News
  • Politics
  • Education
  • Entertainment
  • Opinions
  • Business
  • Sports
  • Crime
  • World News
  • Parliament
No Result
View All Result
The Source
No Result
View All Result
Home News

Nigerian banks face near-term credit risks from regional expansion —Fitch Ratings

The Source by The Source
February 27, 2023
in News
0
0
SHARES
16
VIEWS
Share on Facebookshare on whatsappShare on Twitter

[ad_1]

By Chima Nwokoji | Lagos

 

Fitch Ratings has said that Nigerian banks will face near-term execution and credit risks from their presence in other Sub-Saharan African (SSA) markets depending on the degree of operating environment difficulty and underlying sovereign ratings of these markets.

However, longer-term, increased geographic diversification may support banks’ business profiles and growth prospects and financial performance stability, Fitch Ratings says.

Regional expansion typically involves setting up banking and non-banking subsidiaries. The Central Bank of Nigeria (CBN) requires banks’ non-banking subsidiaries to be held separately under group holding companies.

Non-banking subsidiaries offer diversified products including payments, insurance and pension funds which have significant upside potential.

Hampered by regulatory intervention and domestic country risks, large Nigerian banks are transitioning into regional financial services providers by leveraging their developed domestic business models and franchises, supported by enhanced governance practices and risk management capabilities.

Barriers to entry and competition from incumbents in new, mostly frontier, markets are relatively low and the exits of long-established international banks from the region provide significant growth opportunities.

The rating agency believes Nigerian banks’ expansion strategies, which include greenfield and M&A investments, are credible. United Bank for Africa’s (UBA) and, to a lesser extent, Guaranty Trust Holding Company Plc’s (GTCO) strategies are to establish fully-fledged banking subsidiaries, weighted towards corporate banking and treasury.

UBA has by far the largest regional presence. FBN Holdings Plc (FBNH) and Zenith Bank Plc’s (Zenith) focus is also mainly on corporate banking, which is highly competitive.

Fits also said Nigerian banks see significant opportunities in retail banking.

Access, with growth fuelled by M&A activity, is focused on both retail and corporate banking. Access is ambitiously targeting a 30 percent contribution to gross revenues from its regional operations in the medium term.

Despite the global economic slowdown, SSA GDP is estimated to grow by around four percent in 2023 compared to global growth of just 1.4 percent.

Opportunities for banking and financial services can be significant, with African countries having large, young and underbanked populations.

According to Fitch, to tap the retail segment in particular, Nigerian banks will utilise proven digital offerings to acquire market share, reduce operating expenses and increase investment returns.

However, banks’ operations and risks remain concentrated in Nigeria and regional growth and diversification do not necessarily provide ratings uplift.

Nigerian banks with sizeable exposures outside their home market can be negatively affected by exposures to low-rated countries such as the Republic of Congo (‘CCC+’), Mozambique (‘CCC+’), Ghana (RD) and Zambia (RD).

However, the operating environment (OE) score can be supported by exposure to higher rated OEs, such as Côte d’Ivoire, South Africa and Namibia (all rated ‘BB-Banks’ risk profile scores can be negatively affected by market risks, especially FX risk. Regional expansion brings significant operational risks and requires robust processes and systems to mitigate human error, fraud and cyber related risks.

Business profiles can be notched up when regional diversification directly benefits the franchise, market position and performance stability, or notched down when expansion strategies fail to deliver stated objectives, the agency stated.

“Nigerian banks typically lend to the government or invest in government securities in countries where they have a footprint, making subsidiaries’ creditworthiness closely linked with domestic sovereigns.

“The credit profiles of the latter are very weak in a number of African countries,” it noted.

Regional expansion for Nigerian banks may benefit profitability and internal capital generation, with increased risk-weighted assets usually tempered by zero-risk weighting for government exposures.

Conversely, uncontrolled growth may exert near-term pressure on capital. Regional subsidiaries that gather low-cost, local-currency and US-dollar denominated deposits can help diversify the parent group’s funding base and lower overall funding costs. Subsidiaries can also support the groups’ liquidity when dollar funding is fungible.

 

READ ALSO FROM NIGERIAN TRIBUNE 

[ad_2]

Be the first to read it our next BREAKING NEWS, POLITICS, METRO. Click here to join our WhatsApp group

Previous Post

Cashless policy: Tech startup launches innovative app for payment solutions

Next Post

DLM’s N5bn Commercial Paper records oversubscription 

The Source

The Source

Related Posts

ITF Ratifies Osun as South-West Zonal Headquarters
News

2025: Osun Powers Ahead with Climate-focused Initiatives

by The Source
June 29, 2025
Egbedun @40: Akinleye Salutes Symbology Youthful Excellence, Legislative Distinction
News

Egbedun @40: Akinleye Salutes Symbology Youthful Excellence, Legislative Distinction

by The Source
June 28, 2025
Prof. Adepoju Calls on Women to Support Husbands, Launches Book on Fathers’ Sacrifices
News

Prof. Adepoju Calls on Women to Support Husbands, Launches Book on Fathers’ Sacrifices

by The Source
June 28, 2025
Fubara, Wike Sighted Together in Rivers State after Peace Talks
News

Fubara, Wike Sighted Together in Rivers State after Peace Talks

by The Source
June 28, 2025
Defence Academy Attack: Bandits Demand N200m Ransom For Abducted Officers
News

Bandit Leader Babaro Seizes Kankara, Bans Farming, Kills Dozens

by The Source
June 26, 2025
Next Post

DLM’s N5bn Commercial Paper records oversubscription 

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Browse by Category

  • Africa News
  • Business
  • Celebrities
  • Crime
  • Economics
  • Education
  • Entertainment
  • Health
  • HumanAngle
  • News
  • Opinions
  • Parliament
  • Politics
  • Religion
  • Sports
  • Uncategorized
  • World
  • World News

Browse by Tags

Abuja Adeleke APC Aregbesola Atiku Bandits Buhari CBN Chelsea Court Davido EFCC EndSARS FG FIRS Governor Governor Adeleke IGP INEC Kaduna Lagos Muslims Naira Nigeria Nigerian Nigerians NUJ Ondo Ooni Osinbajo Osogbo Osun Osun 2022 Osun govt Osun Poly Osun State Oyetola PDP Police SDP Senate Students Tinubu Tunde Odesola US

Categories

  • Africa News
  • Business
  • Celebrities
  • Crime
  • Economics
  • Education
  • Entertainment
  • Health
  • HumanAngle
  • News
  • Opinions
  • Parliament
  • Politics
  • Religion
  • Sports
  • Uncategorized
  • World
  • World News

Browse by Tag

Abuja Adeleke APC Aregbesola Atiku Bandits Buhari CBN Chelsea Court Davido EFCC EndSARS FG FIRS Governor Governor Adeleke IGP INEC Kaduna Lagos Muslims Naira Nigeria Nigerian Nigerians NUJ Ondo Ooni Osinbajo Osogbo Osun Osun 2022 Osun govt Osun Poly Osun State Oyetola PDP Police SDP Senate Students Tinubu Tunde Odesola US

Recent Posts

  • NANS Speaks on Arrest of Suspects with NANS-Branded Vehicle
  • 2025: Osun Powers Ahead with Climate-focused Initiatives
  • Egbedun @40: Akinleye Salutes Symbology Youthful Excellence, Legislative Distinction

© 2022 The Source Nigeria.

No Result
View All Result
  • Home
  • News
  • Politics
  • Education
  • Entertainment
  • Opinions
  • Business
  • Sports
  • Crime
  • World News
  • Parliament

© 2022 The Source Nigeria.

Welcome Back!

Login to your account below

Forgotten Password?

Create New Account!

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In