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LAGOS, Oct 12 (Reuters) - Nigeria’s banks are facing economic challenges but have strong capital buffers to weather the crisis, a central bank official said on Wednesday following a meeting with lenders.
Nigeria, Africa’s biggest economy, is in recession with a slump in the oil revenues that make up the bulk of its foreign earnings having hammered public finances and the naira currency.
In June the central bank dropped its peg of the naira against the dollar, prompting the local currency to depreciate by 40 percent, further hitting consumers’ spending power.
The non-performing loan (NPL) rate in the banking sector hit 11.7 percent in the first half of 2016, well above the central bank’s 5 percent limit, and it has forecast a further rise in the second half.
NPL’s stood at 5.3 percent at the end of last year.
Loans to the oil and gas sectors accounted for almost a third of total bank lending, the central bank said in its half-year financial stability report.
The fall in oil prices since mid-2014 has forced Nigerian lenders, which have long focused on loans to the energy sector, to adapt their business models.
“Banks have strong capital buffers,” Tokunbo Martins, the central bank’s director of banking supervision, told journalists after the meeting, which is held every two months.
In July, the central bank sacked the management of Skye bank, Nigeria’s eighth biggest, for failing to meet minimum capital requirements.
“Banks are feeling the headwinds,” added Martins, who said the supply of foreign exchange for manufacturers would be improved. However, she did not say how. (Reporting by Ulf Laessing and Oludare Mayowa; Writing by Alexis Akwagyiram; Editing by Toby Chopra and John Stonestreet)