President Muhammadu Buhari, GCFR

Lenders at risk as Nigeria heads for recession, says World Bank

* Higher inflation may push 5 million more consumers into poverty

*Economy could shrink by 7.4% while recession extends well into 2021

Isola Moses | ConsumerConnect

The World Bank has said that the Nigerian banking system is at risk of being destabilised as the Coronavirus pandemic triggers what might be the worst recession in four decades in the African largest economy.

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, said the international lender in a report on Nigeria released Thursday, June 25.

The worst-case scenario could see the economy shrinking 7.4%, and the recession extending well into 2021, reports Bloomberg.

It was learnt that the downturn would likely increase non-performing loans, especially in credit extended to the oil industry, while Dollar-denominated exposures would 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, according to the report.

Mr. Godwin Emefiele, Governor of Central Bank of Nigeria

The Central Bank of Nigeria (CBN) was said to have responded by devaluing the Naira by 15% to ease the strain on the exchange rate.

On ‘market adjustment’, the World Bank stated that “pressures in the external sector and the stress COVID-19 caused in global financial markets could destabilise Nigeria’s financial sector.

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

Nigerian banks have already applied to the CBN for permission to restructure one third of their loan book as the pandemic and a slump in oil prices hurt their businesses, according the CBN.

ConsumerConnect gathered that a total of 17 banks submitted requests to restructure more than 32,000 loans for individuals and businesses impacted by COVID-19 by the end of May.

Aishah Ahmad, a Deputy Governor of Central Bank of Nigeria, said in her Monetary Policy Committee notes published on the regulator’s Web site Wednesday.

Meanwhile, 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 in its latest report on Nigeria.

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