Non-performing Loan Ratio Crashes to 13.4%

bank loans
  • Non-performing Loan Ratio Crashes to 13.4%

As economic recession continues to weigh on the banking sector, non-performing loans ratio in the banking industry has crashed further above the Central Bank of Nigeria’s five per cent threshold.

The NPLs ratio fell to 13.4 per cent in September 2016, up 11.7 per cent recorded in June 2016, according to a Bloomberg report.

The industry-wide NPLs ratio had hit 5.3 per cent in December 2015, exceeding the prudential limit of 5.0 per cent, the CBN Financial Stability Report for the first half of last year revealed.

Specifically, the NPLs in the period under review grew by 158 per cent from N649.63bn at end-December 2015, to N1.679tn at end-June 2016, the CBN report showed.

The Group Managing Director, Access Bank Plc, Mr. Herbert Wigwe, predicted that the level of troubled loans would continue to climb before an economic recovery in the second half of the year would bring relief to the banks.

“Across the entire industry, you’ll see an uptick in non-performing loan ratios,” Bloomberg quoted Wigwe as saying in a report on Friday.

“We are better than most,” the Access Bank GMD added.

Access Bank, the country’s fourth-largest bank by assets, expects that its NPLs will climb to “slightly below” three per cent of total loans by the end of this year, compared with 2.1 per cent for the nine months through September last year.

The picture is not as rosy for the rest of the industry as lower crude prices and foreign-currency shortages cause the economy to contract.

Wigwe said the lender was targeting companies that sourced their raw materials locally for loans to reduce the risk of unpaid debt.

First Bank of Nigeria Limited, the country’s biggest lender by assets, stood out among the largest banks with an NPL ratio of 22.8 per cent at the end of September last year.

Zenith Bank Plc, United Bank for Africa Plc and Guaranty Trust Bank Plc had the NPL ratios ranging from 2.2 per cent to 4.1 per cent.

Capital levels also decreased. The sector’s capital adequacy ratio fell to 14.7 per cent in June from 16.1 per cent in December 2015.

For big banks, which the CBN classified as having more than N1tn of assets, the ratio fell to 15.65 per cent, still above the requirement of 15 per cent.

According to Wigwe, conditions in the economy should start improving in the second half of the year if monetary and fiscal measures take hold.

The CBN left its benchmark interest rate unchanged at a record 14 per cent in November as it seeks to contain inflation that rose to the highest level in more than a decade, with President Muhammadu Buhari planning to boost spending this year by 20 per cent to revive growth.

The Access Bank GMD said the lender had managed to get into an “extremely liquid” position by raising N35bn in the last quarter of 2016 by tapping a N100bn commercial bond programme.

“We will continue to raise until we can get to that programme limit; some of it may mature, which we will repay, then raise again,” Wigwe said.

“The whole idea is that we must always have that liquidity buffer,” he added.

About the Author

Samed Olukoya
CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

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