Fitch, one of the big three rating agencies in the world, says Tier 2 Nigerian banks may struggle to remain profitable in 2018.
In a statement released on Thursday, Fitch said reduced treasury bill issuance will affect the profitability of banks.
“However, some second-tier banks with a 9M17 operating ROAE of 4%-6% may struggle to remain profitable in 2018.”
The agency said Nigerian banks were highly reliant on the interest income from treasury bills in 2017 as it made up 30 percent of their income.
“The slowdown in T-bill issuance marks a change of strategy as the government looks to increase its financing from external sources and longer-dated domestic issuances.
“Record T-bill issuance in 2017 helped support the Central Bank of Nigeria’s strategy to maintain naira exchange-rate stability.
“Nigerian banks are highly reliant on net interest income for profitability and T-bills proved to be an important source of profits in 2017.
“We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018.
“We expect falling T-bill yields and lower issuance to put pressure on Nigerian banks’ profitability in 2018.”
While the big banks in the country like Guaranty Trust Bank, Access Bank, United Bank for Africa, Zenith and First Bank might be able to withstand the pressure, Fitch says Tier 2 banks might not be so lucky.