By Obinna Chima

Nigeria’s banking industry ratings could be upgraded as capital ratios are expected to rise to 20 percent next year, from their current 14 percent, Nigeria’s oldest ratings agency –Agusto &Co has said.

A Senior Official at Agusto & Co disclosed this to Reuters Tuesday. The firm maintained the banking sector rating at “Bb” on a stable outlook, after downgrading it from “BBB” in 2008, and said the capital ratio stood at 14 percent this year, after it fell by more than half last year.

The minimum capital ratio requirement in Nigeria -the percentage of a bank’s capital to its loans, is 10 per cent.

The ratio was 25 percent in 2008, before a bad loans crisis engulfed the banking sector, prompting the Central Bank of Nigeria (CBN) to intervene in 2009.

The banking sector watchdog had bailed out nine banks in 2009 and injected a total of N620 billion into the financial institutions because when they were declared so weakly capitalised that they posed a risk to Nigerian economy.

Five of the rescued banks have since signed merger deals with their preferred investors and are working assiduously towards the September 30, 2011 recapitalisation deadline. On the other hand, three of the intervened banks have been nationalised.

“If by next year, a lot of the banks have made improvements in profitability and risk management, we might change it (rating),” Agusto’s Head of Financial Institutions, Yinka Adelekan, told Reuters.

Adelekan added: “With the inflows from Asset Management Corporation of Nigeria (AMCON) into the banks that had capital problems, we expected the base ratio for the whole industry to go between 18-20 percent.”

Agusto & Co had last year assigned a “Bb” moderate risk rating with positive outlook to the banking sector, citing weak capitalisation and a sharp deterioration in credit quality.

Yinka said the current improvement in earnings in the banks so far, were largely due to an injection from the state “bad bank” –

AMCON, which took on their Non-Performing Loans (NPLs).
AMCON had also injected a total of N679 billion into Mainstreet Bank (formerly Afribank), Keystone Bank (formerly Bank PHB) and Enterprise Bank (formerly Spring Bank.)

“It could take at least three years for profitability to return to the banking industry,” she added.

Adelekan said core capital for the banking industry including injections from state-owned “bad bank” AMCON stood at N975 billion ($6.26 billion). Profits need to be reliable to affect ratings, she said

AMCON’s Managing Director and Chief Executive Officer, Mr. Mustapha Chike-Obi, had said that with the recent intervention by the banking sector regulators, the industry is now better positioned.

“Now, when we did what we did to those banks, they are now able to make loans, today, the three new banks can make loans, they have liquidity and capital,” he had  informed THISDAY.

Source: ThisDay