Nigeria’s economy is expected to stage a rebound with a projected Gross Domestic Product (GDP) growth of 2.1 per cent in 2021 and 3.1 per cent in 2022, after it experienced a 1.9 per cent contraction in 2020.

This is according to Moody’s Investors Service report published on Tuesday.

The report noted that if the current high oil prices are sustained, economic activities will be boosted but the economy will still be sensitive to oil price movements.

In its outlook of Nigeria’s banking system, Moody’s stated that it remains negative as it expects asset risks to rise and the government’s support capacity to weaken over the next 12 to 18 months.

Reacting to the report, analyst at Moody’s and the co-author of the report, Peter Mushangwe, said: “Nigerian banks’ loan quality will weaken in 2021 as coronavirus support measures implemented by the government and Central Bank last year, including the loan repayment holiday, are unwound.”

Mr Mushangwe further added that: “The negative outlook also captures the weakening capacity of the Government of Nigeria to support the country’s banks in case of need, as reflected by the negative outlook on the government’s credit rating; on the other hand, Nigerian banks hold robust capital buffers and foreign-currency shortages will ease.”

“The government’s capacity to support banks may weaken, as it has an extremely low revenue base, which has remained below 10 per cent of GDP since 2015. However, the government’s willingness to provide support to large banks in the event of a crisis and to sustain financial stability will remain high, he noted.

The report indicates a warning to banks in Africa’s biggest economy that they face higher asset quality risks “as Coronavirus support measures are withdrawn amid large single-name and sectoral concentrations and as banks hold a large volume of foreign currency loans.”

Additionally, banks’ balance sheets have large burden volumes of Stage 2 loans. The report noted that pressure on borrowers will reduce following the outbreak of the pandemic as it estimates that in 2020, between 40 per cent to 45 per cent of banking loans will be restructured.