Tayo Busayo – Nigeria’s frontline technology-driven credit rating agency, DataPro has expressed fears that the future of banks and other financial institutions seem bleak if key fundamentals are anything to go by.
In its latest report “Nigeria’s credit outlook” made available to DAILY COURIER, the agency observed that though 2022 began with a largely positive credit momentum, reflecting favorable financing conditions and a powerful economic recovery but fears that this could be derailed if persistently high inflation pushes central banks to aggressively tighten monetary policy, triggering significant market volatility and repricing risks.
Specifically, the agency noted that Banks will be able to maintain the improved performance they achieved in 2021. However, different types of risks lurk across regions. “Most importantly, 2022 should see acceleration in the regulatory debate on less traditional risk types, including environmental and technology-related risks. The Basel Committee, for instance, recently published a consultation paper on a principles-based approach for the effective management and supervision of climate-related financial risks. It is believed that banks will, next year, accelerate their initiatives to embed these risks into their credit culture, strategy, and risk management.”
Besides, it said, “Speculative-grade defaults are also expected to remain low through 2022, assuming there are no policy surprises or economic setbacks. Abundant and cheap liquidity, increased risk appetite, and investors’ search for yield has led to strong credit demand across the ratings scale, allowing corporates to refinance debt and extend maturities, limiting near-term refinancing risks. Still, defaults could arise from new financing risks, shorter maturities in certain industries, and regions most relying on market liquidity. Bankruptcies could also rise among small and mid-size businesses.”
Pressed further, DataPro said, “Robust economic growth and largely favorable funding conditions point to a steady overall ratings performance in 2022 with fewer downgrades (6% global net negative bias) and low or no default rates. Yet, persistent supply chain disruptions and high input costs could weigh on growth and ratchet up the pressure on so-far resilient corporate margins. Inflationary pressures are clouding the outlook for emerging markets (Ems) still battling with the pandemic.