Nigerian companies seeking access to financing will face frustration as Nigerian banks go through a fresh phase of upheaval and government intervention. So says Robert Besseling, executive director of specialist intelligence company Exx Africa.

Hit by falling global oil prices and crude production cuts, the country confirmed recently that it is in technical recession: its gross domestic product (GDP) dropped by 2.06% in the second quarter of 2016 after falling 0.36% in the previous three months. The technical definition of a recession is two consecutive quarters of negative growth.

Last month the country’s central bank (CBN) suspended nine lenders from the interbank currency market. According to Besseling, the move indicates that the government seeks “greater powers” to intervene in the failing economy.

The move was “a clear warning to commercial banks that the CBN intends to take a tougher stance on alleged non-compliance”, Besseling tells GTR.

According to a media note issued by Exx Africa last week, President Buhari is likely to intervene with distressed lenders, local oil producers, electricity generating companies and fuel marketers, which could include a new wave of dismissals and prosecutions of senior managers for criminal mismanagement.

“Commercial banks that report losses caused by oil-related non-performing loans (NPLs) and withdrawals of public sector deposits are likely to face similar interventions,” says Besseling.

Going forward, the ability of Nigerian banks to meet new financing needs will be challenged as the CBN is still intervening to prop up the naira’s official value, he explains.

“Chronic shortages of foreign currency have stymied economic growth and resulted in massive capital flight. Banks continue to face pressure from NPLs, a plunging currency, and serious foreign exchange shortages,” he adds. “In response, Nigeria’s 21 banks are cutting costs and closing branches.”

The manipulation of the currency regime will again increase the risk of state bankruptcies and a banking sector crisis, says Besseling, although he adds that a more systemic banking crisis will be partially mitigated by additional loans that have been allocated in Nigeria’s US$30bn expansionary budget, which will allow distressed states to regain the ability to service their debts and pay salaries.

“The government plans to raise US$10bn of new debt of which US$5bn would come from foreign investors. However, continued manipulation of the naira would frustrate any attempts by the finance ministry to attract new capital investment,” reads the media note.