Devaluation to affect banks if implemented

ayodele johnson

January 25, 2016 7:38 AM

It is predicted that local banks will suffer more from another devaluation if the CBN concede to pressure to devalue the naira

Banking Hall

The Central Bank of Nigeria (CBN) has been under constant pressure concerning the devaluation of the Naira, especially from the masses who are currently feeling the pain of the apex bank foreign exchange policy.

It is predicted that local banks will suffer more from another devaluation if the CBN concede to pressure to devalue the naira.

A study conducted by Renaissance Capital concerning banks in Nigeria has predicted that banks will suffer asset erosion, reduced income from foreign exchange transaction and loan default from customers.

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Findings from the study said, “We see a three-fold impact on Nigerian banks from a naira devaluation: capital, foreign exchange income and asset quality. It said that three banks’ capital adequacy ratios (CARs) are the most sensitive to a weaker naira given that they do not have sufficient foreign exchange tier 2 capital buffers to shield them from the impact of devaluation. It said that FBNH, Skye, Ecobank Nigeria and FCMB would probably be quickest to breach minimum CAR requirements and feel the pressure to raise capital”.

According to Renaissance Capital “GTBank, Fidelity and Stanbic witnessed the most significant jumps in foreign exchange income in the fourth quarter of 2014 and first quarter of last year when the naira was devalued and history could repeat itself. The asset quality impact is more difficult to estimate, but we expect an increase in cost of risk.”

At best, banks in the country can start bracing themselves for the imminent challenges if devaluation is eventually implemented.

ayodele johnson