Credit rating agency, Fitch Ratings, has declared in a new report Nigerian banks face potential global risk transmission, explaining that operating environments could deteriorate between now and 2023.

Fitch said adverse global macroeconomic conditions are already affecting the Nigerian economy, noting however that the Nigerian banking sector is not expected to experience material losses.

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“Soaring inflation led the Central Bank of Nigeria (CBN) to raise its benchmark rate by 150bp on 24 May, and the pressures on banks’ profitability and asset quality will be higher than we had initially expected for 2022. However, the sharp rise in oil prices this year will mitigate the economic impact from the global risks, and we do not expect Nigeria’s banking sector to experience a material shock.”

It listed the specific ways the current global economic conditions could affect Nigerian banks to include pressure on borrowers mounting from the prevailing high inflationary environment and a potential economic slowdown. The situation, according to the rating agency, will be to the detriment of the banks’ asset quality.

Fitch said it expects the rising inflation rate to pressurize the Central Bank of Nigeria to further increase interest rates and support banks’ interest margins.

Expectations have been that the prevailing high oil prices would enhance Nigeria’s foreign exchange and also boost to the country’s foreign exchange reserves. The high oil price outlook, according to Fitch, should help relieve pressure on bank assets.

It explained that much of the banks’ loan exposure is to the Nigerian oil and gas sector which currently positions to earn bigger from the price windfalls.

The positive price outlook, The Oracle Today reports, would help address non performing debt ratio and generally improve the overall state of the economy.