Another round of devaluation of the naira will compound the woes of First Bank Plc as over 50 percent of the lender’s spiralling non performing loans (NPLs) are dollar denominated, analysts at Ren Cap say.
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.
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.
“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.
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