Fitch Ratings says Nigerian banks are facing high financial risks due to rising government loans and stringent regulatory policies.
During a recent webinar co-hosted by Fitch and Renaissance Capital, Tim Slater, the Director for African Banks at Fitch Ratings, noted that the banking sector continues to encounter regulatory challenges, particularly the Cash Reserve Ratio (CRR), which mandates that banks deposit 50% of their Naira with the Central Bank of Nigeria (CBN) without accruing any interest.
Slater stated, “The cash reserves held at the Central Bank are unremunerated and thus limit the profitability of the banking sector.”
Additionally, he disclosed that as of December 2024, the unremunerated cash maintained at the Central Bank constituted a significant 17% of the total assets in the banking sector, an increase from 12% in 2016, and represented 46% of Naira deposits, compared to 27% in 2016.
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He emphasised that this situation considerably restricts banks’ capacity to provide credit or yield returns on their assets.
The agency estimates that sovereign-related assets comprising treasury bills, bonds, and unremunerated reserves account for 35% of total banking sector assets and 350% of total equity.
Fitch noted that this level of exposure creates a material concentration risk that could severely impact bank solvency in the event of a sovereign default.
In Fitch’s view, these policies, though aimed at ensuring macroeconomic stability and supporting the Naira, are squeezing bank profitability and limiting operational flexibility.
