Africa ‘Week-Ahead’ Forecasts (April 11 – 17, 2011)

The recent comment by the director of banking supervision at Nigeria’s Central Bank, Samuel Oni that the regulator would in the future not allow bad loans to again climb to more than 5% of total loans across the banking industry is unrealistic.

Until late last year the average NPL during the recent banking crisis was approaching 50%.

In the period before the crisis the average NPL ratio was in the mid double digits.

Hence if Oni and the central bank are serious, they would have to impose much tougher lending restrictions on the country’s commercial banks and reduce lending to the private sector, which had fallen dramatically in the past two years to even lower levels.

Any draconian imposition of an across-the-board-cap on NPLs may make it harder for the ‘rescued’ and smaller banks to attract aggressive Private Equity and other foreign investors.

Nigeria’s GDP growth will also be negatively affected by this proposed regulation is enacted.

Da’Mina Advisors