As a result of some positive news coming from the nations beleaguered banking industry, especially the recent actions of the Assets Management Corporation of Nigeria, an international ratings agency, Standard & Poors Ratings Services, said on Wednesday that it was revising its Banking Industry Country Risk Assessment on Nigeria to group eight from nine.In the same vein, the agency said it would revise the economic risk score to eight from nine, while assigning an industry risk score of seven to the economy.A BICRA analysis for a country covers rated and unrated financial institutions that take deposits, extend credit, or engage in both activities. A BICRA is scored on a scale from one to 10. One is the lowest-risk banking systems, while the highest-risk group is 10.Reutersquoted S&P in its updated BICRA methodology as saying, We have reviewed the banking sector of the Federal Republic of Nigeria (B+/Stable/B) in the light of our updated BICRA methodology. Our criteria define the BICRA framework as one designed to evaluate and compare global banking systems.Our economic risk score of eight reflects our opinion that Nigeria has a very high risk in economic resilience, a high risk in terms of economic imbalances and a very high risk in credit risk in the economy, as our criteria define those terms.It further said that the industry risk score of seven for Nigeria was based on its opinion that the country was facing very high risk in its institutional framework, competitive dynamics and intermediate risk in system-wide funding.Other countries in the BICRA group eight include Argentina, Tunisia, Lebanon and Kazakhstan.According to S&P, the slow recovery of the domestic economy has slowed credit growth and kept the stock market muted, limiting economic imbalances.It said, In our view, credit risk in the economy is very high because of Nigerias low wealth levels, the banks track record of relaxed underwriting standards, industry concentrations, and a weak payment culture. Nevertheless, financial support from the Asset Management Corporation of Nigeria has helped reduce credit risk.Our opinion on institutional framework incorporates this track record and the prevalence of poor corporate governance in Nigerias banks. During and after the crisis, the CBN supported the system by offering a full inter-bank guarantee and creating AMCON. We consider these actions to be positive for the industry.The rating agency further said that the funding profile of the industry was relatively stable, adding that it was mainly based on short-term customer deposits, although the potential for volatility thus created was somewhat offset by good liquidity in the banking sector.We classify the Nigerian government as supportive towards its domestic banking sector. Our opinion balances the strong extraordinary support provided by the authorities, including through AMCON, against the potential political instabilities that could lower the predictability of support in the future, it added.Fitch Ratings, another international ratings agency, recently predicted improvement in the financial performance of some of the highly rated banks in the country.Fitch, in a report summarising its view on several high-level banks in the world, said it expected the financial performance of most of the Fitch-rated Nigerian banks to improve in 2011 as a result of lower impairment charges and funding costs.It said, Over the medium-term, higher levels of credit growth, non-interest income and a greater cost management focus may support banks earnings as the competition for lower-cost deposits intensifies.The banks half-year results for 2011 show a trend of improved, more stable earnings due to significantly lower impairment charges compared with 2009-2010. The first half results reflect some pent-up demand after prolonged uncertainty with cost management expected to take on increased focus.
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