Naira devaluation: FBN risks further drop in profit

ANOTHER round of devaluation of the naira will compound the woes of Fist Bank Plc, National Daily investigation has revealed.

It was gathered that over 50 percent of the lender’s spiraling non-performing loans (NPLs) are dollar denominated, and therefore could be affected if the speculated devaluation of the naira is carried out.

First Bank has suffered a significant drop in profit caused by huge impairments on financial assets otherwise known as loan loss expense. NPLs increased to 22 percent in the first quarter of the year, fuelled by exposure to the oil and gas.

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This figure crosses the 5 percent threshold questioning the risk management strategy and portfolio management of the bank. The bank’s risk assets managers failed to diversify or minimise risk and maximise return. A possible devaluation of the currency is inevitable given the continued depletion of the external reserves and rising inflation.

Nigeria, Africa’s largest economy has been grappling with a fall in oil price by 65 percent to $45 a barrel, forcing the Central Bank to impose capital control and restricting dollars to banks.

The CBN pegged the naira at N197-N199 at the official rate while selling at N325 at the parallel markets.

“Another related asset quality concern is that 56% of the bank’s NPLs are FX, which implies that if devaluation occurs, coverage levels would fall, with the bank needing to set aside more naira earnings to cover these greenback NPLs. In light of this, it is quite difficult for us to get comfortable with a coverage ratio of 37 percent”, said analysts at Rencap.