Analysts forecast 8% loan growth for banks in 2021
Analysts at CSL Stockbrokers Limited have predicted 8% loan growth for the Nigerian banking sector in 2021.
The Lagos-based company said so in a report on its outlook for 2021 titled: “Surviving Amidst Uncertainties.”
The company pointed out that the onset of the pandemic and the subsequent impact on the macroeconomic environment resulted in minimal loan growth for banks.
He revealed that in the first nine months of 2020, banks covered by his coverage reported an average loan growth of 9.6%, adding that banks were expanding their loan portfolios to meet the minimum loan amount- on loan from the Central Bank of Nigeria (CBN). deposit ration (LDR).
However, he noted that the onset of the virus and the weak macro environment forced many banks to slow loan growth despite CBN’s minimum LDR requirements.
“We expect an average loan growth of 8% for the banks under our cover,” the company added.
He said the CBN’s 65% minimum LDR policy and its policy limiting individuals, PFAs and businesses to Nigerian Treasury Bills (NT-Bills), term deposits and FGN bonds had resulted in a significant decline returns on assets for banks.
“With rates still at historically low levels, we expect only marginal improvement in yields as the year progresses.
“We expect non-interest income to improve as banks strive to increase transaction volumes in line with CBN’s revised fee guide on electronic transactions which came into effect in 2020.
“Banks received a forbearance in 2020 ending loan restructuring. With the macroeconomic situation still being bad, we expect some of these loans to start showing signs of strain, ”he added.
In his assessment of the economy in general, he noted that the Nigerian economy entered recession in 2020, brought on by headwinds associated with the Covid-19 pandemic.
He predicted that the economy would contract by 2.7% in 2020 and emerge from recession in 2021, supported by the gradual normalization of economic activities, as the impact of the foreclosure in 2020 continues to fade.
“We expect growth to be driven by the non-oil sector, supported by gains from the agriculture and telecommunications sectors, which together represent around 38 percent of the GDP basket.
“On the oil sector, we see a limited increase as production will continue to be undermined by the OPEC cuts. We expect growth to reach 1.4% in 2021.
“The downside risks to our forecasts relate to the lingering effects of the pandemic caused by the delayed distribution of effective vaccines,” he added.
In addition, he noted that consumer prices strengthened in 2020, due to supply chain disruptions resulting from the pandemic, foreign exchange restrictions, border closures and climate-related shocks.
He also predicted that inflation would continue to climb into 2021, with pressures expected from both the food basket and the CPI core basket.
“On core inflation, we expect pressure from the removal of fuel subsidies and rising electricity prices. For food inflation, although the decision to reopen the border is a positive development, food prices will remain high due to persistent insecurity issues in food producing areas.
“Overall, we expect headline inflation to average 16.4% in 2021, with a year-end figure of 14.6%.
“Nigeria’s external position deteriorated in 2020 as continued dependence on oil revenues and hot money left the country vulnerable to shocks. The current account deficit is expected to reach 3.4% of GDP in 2020.
“In 2021, the current account deficit will narrow, supported by a gradual recovery in global economic activities and firming crude oil prices.
“In view of the above, the current account deficit for 2021 is estimated at 10.80 billion dollars (2.31% of GDP).
“Funding these deficits can prove difficult, as foreign portfolio investment flows are expected to slowly recover from last year’s lows.
“In addition, to correct the current balance of payments imbalances and pressure, we expect the CBN to devalue the currency,” he said.
The naira was devalued in all segments of the forex market in 2020, following pressure from external reserves amid high demand for foreign exchange and declining inflows.
“In 2021, as crude oil prices are set to improve alongside the World Bank’s dollar-dominated fiscal facility, we expect the CBN’s monthly intervention to gradually increase to reach pre-pandemic levels of around $ 3.2 billion compared to current levels of $ 1.4 billion, ”he added. .