Credit ratings agency, Fitch has projected an increase in non-performing loans among Nigerian banks in 2024, attributing this trend to rising interest rates and inflation.
In its latest credit report, Fitch affirmed Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with a Positive Outlook.
The report noted that the loan books of the banking sector, which account for 35% of total assets by the end of 2023, are relatively low, suggesting potential vulnerability in the face of economic challenges.
It stated, “Fitch expects the banking sector’s regulatory non-performing loans (end-1Q24: 5.1%) to increase in 2024 due to high inflation and interest rates. However, loan books are small (end-2023: 35% of banking sector assets).”
The report also highlighted the CBN’s plan to increase capital requirements for banks, set to be completed by the end of the first quarter of 2026.
Additionally, it referenced the amendment of the 2020 Finance Act, which introduced a 70% windfall levy on banks’ foreign exchange gains for 2023 and the first quarter of 2024.
Fitch indicated that these regulatory changes are not expected to result in breaches of capital adequacy ratios for the banks.
Fitch noted in the report that it anticipates an increase in the Monetary Policy Rate in the last quarter of 2024.
This expectation comes alongside the ongoing implementation of prudential and operational tools, such as open market operations, with rates positioned near the MPR.
These measures aim to enhance the effectiveness of monetary policy transmission following a period of prolonged financial repression.
Nigeria’s inflation rate surged to 32.7% in September 2024, reversing a two-month slowdown since July.
This increase was primarily driven by rising petrol prices, which contributed to higher transport costs.
Food inflation also climbed, reaching 37.77% year-on-year, a significant jump of 7.13 percentage points from 30.64% in September 2023.
On a monthly basis, food inflation rose to 2.64% in September, up from 2.37% in August, reflecting a 0.27% increase.
Under Yemi Cardoso’s leadership, the CBN has raised the MPR five times to combat inflation and foster economic stability. The initial increase raised the rate from 18.75% to 22.75%, followed by subsequent hikes to 24.75%, 26.25%, and 26.75%.
The most recent adjustment occurred in September 2024, when the Monetary Policy Committee increased the rate by 50 basis points to 27.25%.
