A surge in lending is likely to boost the earnings of Nigeria's banks this year though loans are eating into capital reserves and are too concentrated in the oil sector, credit rating agency Standard and Poor's (S&P) said on Friday.
Nigeria's banking sector earnings bounced back in 2012 from write downs of bad assets accumulated during a 2009 financial crisis that nearly sank nine of them. Lenders fixed their balance sheets by selling bad loans to a state-owned "bad bank".
"We forecast that bank earnings will continue to rise because of the healthy macro-economic environment supporting bank activities," S&P's financial services ratings associate director, Samira Mensah, told Reuters in a telephone interview.
"We have seen earnings strengthen, stemming from high levels of net interest margins and a lot of government securities providing high yields at the moment," Mensah said.
Nigerian banks are likely to see return on equity (ROE) rise to 18 percent this year from about 15 percent in 2012, buoyed by an expected 30-percent rise in loan books, up from 12 percent growth last year, Standard and Poor's (S&P) said.
Tier 1 capital ratios are expected to fall to 15 percent from last year's 20 percent, Mensah said, adding that these were still adequate but there were risks posed by loans being too concentrated in the oil sector and foreign currency lending.
Banks in Africa's second biggest economy are due to release their results from this month, and most analysts expect them to show significant earnings growth, further boosting their shares.