Govt Securities Dominate 11% of Banks’ Assets — S&P Global
Nigerian banks’ exposure to government securities has risen to 11 percent of their total assets, heightening their vulnerability to sovereign risk, according to a new report by S&P Global Ratings.
The report noted that increased investment in government debt instruments such as treasury bills and bonds has strengthened banks’ earnings in the short term but also deepened their exposure to potential fiscal and macroeconomic shocks. A deterioration in government creditworthiness, S&P warned, could directly impact banks’ balance sheets and capital adequacy.
S&P Global attributed the trend to attractive yields on government securities, limited private-sector credit growth, and banks’ preference for low-risk assets amid economic uncertainty. While the strategy has supported liquidity and profitability, it has also tightened the link between the banking sector and public finances.
The ratings agency said Nigerian banks remain resilient overall, supported by strong capitalization and improved foreign currency liquidity, but cautioned that rising sovereign exposure could amplify risks during periods of economic stress.
“Any adverse movement in government finances or debt servicing capacity would have a direct transmission effect on banks,” the report stated.
Despite the concerns, S&P said regulatory oversight and ongoing reforms in the financial sector could help mitigate risks if fiscal consolidation efforts are sustained.
