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Nigerian banks face higher risk as recession beckons says World Bank

Nigeria’s banking system is at risk of being destabilized as the coronavirus pandemic triggers what might be the worst recession in four decades for Africa’s largest economy, according to the World Bank.

If the spread of the virus eases and oil prices remain stable, the economy could contract 3.2% this year and face a slow recovery afterward, the lender said in a report on Nigeria released Thursday.

According to a report by Bloomberg the worst-case scenario could see the the economy shrinking 7.4% and the recession extending well into 2021.

The downturn will likely increase non-performing loans, especially in credit extended to the oil industry, while dollar-denominated exposures will exert further pressure on local banks.

Though Nigeria normally relies on crude exports for about 50% of government revenue and 90% of foreign receipts, the government expects oil revenue to fall by 80% this year due to the plunge in demand as much of the world shuttered to contain the virus.

The central bank had responded by devaluing the naira by 15% to ease the strain on the exchange rate.

“Pressures in the external sector and the stress COVID-19 caused in global financial markets could destabilize Nigeria’s financial sector,” the World Bank said.

“The gradual lifting of restrictions may reveal a need for further market adjustment.”

Nigerian banks have already applied to the country’s central bank for permission to restructure one third of their loan book as the pandemic hurt their businesses.

The World Bank expects annual inflation to climb to 13.8% by year-end 2020 from 11.4% last year.

Higher inflation will hit the poor particularly hard, adding another 5 million to the rank of the poor in Nigeria, where already over 40% of its population live below the poverty line, the bank said.

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