Expect more acquisitions, increase in banking competition in 2019-Report - EksuGist | No 1 Nigerian Student Gossip Portal Booming From Ekiti State University Nigeria EksuGist | No 1 Nigerian Student Gossip Portal Booming From Ekiti State University Nigeria: Expect more acquisitions, increase in banking competition in 2019-Report
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Sunday, January 27, 2019

Expect more acquisitions, increase in banking competition in 2019-Report

…Says Banks with lower regulatory CAR may raise fresh capital
…’CBN will continue monitoring activities to maintain FX stability’

Nigeria’s banking industry may not have witnessed the last acquisition or merger this year, as more of such deal may likely happen before the end of 2019, the latest report by analysts at Guaranty Trust Bank Plc (GTBank) has revealed. This, they believe, will increase competition in the nation’s banking industry in 2019. Although, their projections followed the Access Bank Plc acquisition of Diamond Bank Plc, in a process that is expected to be successfully completed by April this year. The Analysts in a report titled ‘Macro-Economic and Banking Sector Themes For 2019’, noted that the post-integration challenges and downside risks cannot entirely be dismissed on the back of historical experience of one of the banks but expected that the process will be well-executed by the banks and properly monitored by the relevant regulators. They noted that the success of the merger could trigger other such mergers, with the potential to strengthen the industry, adding that the short term interest rates would remain elevated, and market liquidity tight due to the expected contractionary monetary policy. According to the report, “All existing policy measures deployed towards achieving the monetary objectives of the CBN should remain in force – at least up through to the half year 2019. In light of the expected increase in Federal Government borrowings, the high-interest rate regime could exacerbate any crowding out effect which may negatively impact bank lending rates and cost of funds, with attendant implications for growth and profitability. “The highly regulated foreign exchange environment is expected to remain unchanged. With foreign exchange reserves closing 2018 at $43.1 billion, an estimated 15 months of import, we see room for the CBN to maintain a policy of defending the currency. “While this, in our opinion, may provide some level of stability and positive view for the currency in the short term, a continued decline in crude oil prices will create downside risks to further accretion to the reserves, and capacity to continue to support to currency. “It is not unlikely therefore that we will witness a divergence in the rates offered at the CBN interventions and rates available on the Investors & Exporters (I&E) Window. “We expect the CBN to continue to monitor activities within the market that could adversely affect foreign exchange stability.” On assets quality of Nigerian banks, the report noted that banking industry revealed that there’s a positive relationship between performing loan book and elevated global oil prices, and the reason is not far-fetched as over 30 per cent of the total industry exposure is to the oil and gas sector. According to the report, “With oil prices relatively elevated, the industry had to contend with the combined effect of IFRS 9 resulting in increased loan loss charges against shareholders’ fund which decreased capital, declining loan book due to the relatively low demand for credit and reduced capacity of banks to lend. “We expect banks to intensify efforts to grow their loan books albeit to quality risk rating names, and also expect NPLs to decline from present level.” They disclosed that the impact of IFRS 9 would force commercial banks with lower regulatory Capital Adequacy Ratio (CAR) to raise fresh capital this year. The report by GTBank said: “The impact assessment of IFRS 9 on the industry revealed that the transition to the new standard resulted in a lower capital position in view of the shift from Incurred Loss to Expected Credit Loss (ECL) model. “In effect, most banks saw between 150-500 basis points (bps) shaved off their capital, resulting in significant decline in the regulatory CAR of some banks below the minimum of 15per cent (and 16per cent for D-SIBs) bringing to fore the need for these banks to raise fresh capital. “In a move to cushion the effect of the ECL provisions on tier 1 capital, the CBN introduced a 4-year transitional arrangement which will require banks to hold static the Adjusted Day One impact of IFRS 9 impairment figures and spread it over a 4-year period. “Consequently, the capital position of banks will improve relative to the figures that were published for the 2018 reporting periods. “We expect to see more steps by banks to cover any shortfalls in their capital ratios including raising qualifying debt capital to shore up their capital base.”

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