Standard Bank’s nine months earnings expectation for Nigerian banks

Nigeria's President recently signed the Banks and Other Financial Institutions Act of 2020, a move that is expected to have a significant impact on the country's banking industry. Among other provisions, the act establishes a credit tribunal aimed at enhancing loan recovery within the financial system. To discuss the potential impact of this act and shed light on what to expect from the third quarter earnings of Nigerian banks, Muyiwa Oni, Regional Head for Equity Research at Standard Bank Group, joined CNBC Africa's Esther Awoniyi for an insightful discussion. One of the key elements of the act highlighted by Muyiwa is the acknowledgment of the systemic risk in the banking sector and the need for enhanced regulation in that segment. The establishment of a resolution fund to support distressed banks and institutions also stands out as a significant provision of the act. Banks are required to contribute 10 basis points of their total assets to this fund, which is a positive step for the sector. Additionally, Muyiwa points out that the act could bring about positive changes if implemented effectively and efficiently. Turning the conversation towards the upcoming third quarter earnings of Nigerian banks, Muyiwa expects to see a continuation of the trends observed in the previous quarters. While there has been an increase in non-performing loans and loan loss provisions, the impact has not been as severe as initially anticipated. This can be attributed to the restructuring efforts by the Central Bank and the support provided to banks during the pandemic. Despite challenges, the banking sector has shown resilience, with electronic banking revenues performing well and trading gains contributing significantly to revenues. Muyiwa predicts a steady and continuous trend in the sector's performance in the upcoming quarter. In terms of loan growth, Muyiwa expects a more cautious approach from banks due to the challenging economic environment. The recent protests and violence have added to the uncertainty, leading banks to be more conservative in extending loans. While there was significant loan growth in the previous quarter, Muyiwa anticipates a slowdown in the upcoming period. Overall, the outlook for the Nigerian economy remains challenging, with a projected contraction of around 4% in 2020. The impact of the COVID-19 pandemic, low oil prices, and other factors have weighed heavily on the economy, leading to a negative growth forecast. Despite some potential signs of recovery in the third quarter, the overall expectation is for the economy to contract by the end of the year. The banking sector is poised to navigate these challenges with caution and resilience, adapting to the changing landscape of the Nigerian economy.