Nigerian banks are likely to face more challenges as the nation's benchmark interest rate continues to rise, global credit rating agency, Fitch Ratings, has said.
The Central bank of Nigeria's Monetary Policy Committee had on Tuesday increased the interest rate from 12 per cent to 14 per cent in a move to curb inflation and strengthen the naira. The move has been widely criticised by economists.
The CBN's Monetary Policy Rate (benchmark interest rate), which hovered around six per cent from 2001 to 2011, has risen steeply.
In a statement on Friday, Fitch said, "Rising rates are likely to put additional pressure on banks' asset quality. Almost all lending is extended at floating rates and banks should be able to reprice their loans quite quickly but borrowers will face more difficulties in servicing their debts.
"Impaired loans are already high in the Nigerian banking sector, where average non-performing loan ratios reached 6.2 per cent at end-March 2016, partly reflecting the impact of currency depreciation on businesses as well as higher oil-related problem loans at some banks."
Fitch expects loan growth (excluding foreign-exchange translation effects) to slow during the second half of 2016 and into 2017.
Banks have already tightened underwriting standards as economic conditions in the country worsen.
The nation's Gross Domestic Product contracted by 0.4 per cent year-on-year in the first quarter of 2016 and Fitch forecasts the GDP growth to fall to 1.5 per cent in 2016.