32.9% of Banking Sector Loan Portfolio Going Bad—CBN

Asset Quality Banks

By Modupe Gbadeyanka

There are strong indications that 32.94 percent of the total loan portfolio of the banking industry in Nigeria may good bad with borrowers unable to repay the credit facilities as at when due.

Already, the banks, which gave out these loans to their customers, are looking for ways to avert crisis and one of the suggestions is to restructure them to be able to recoup the funds outside.

Last year, the Central Bank of Nigeria (CBN) forced lenders to give money to customers and those who failed to do so were punished.

Business Post reports that in 2019, local lenders were directed in a circular to increase their loan to deposit ratio to 60 percent before September 30. Those who erred were sanctioned, including the big players in the sector.

Thereafter, the regulator, the CBN, increased the LDR to 65 percent with December 31, 2019 as another deadline. In 2020, the apex bank retained the ratio of 65 percent.

Since the new policy, banks have had to give out loans to customers in order not to get the big hammer of the central bank.

However, the economic crisis caused by COVID-19 has made it very hard for borrowers to pay back the credit facilities they secured from banks.

Several businesses have closed down as a result of the health pandemic, while many workers have lost their jobs for the same reason.

At the last Monetary Policy Committee (MPC) meeting of the CBN, the Deputy Governor of the bank in charge of Financial System Surveillance, Ms Aisha Ahmed, raised an alarm that a total of 17 banks have submitted requests to restructure about 32,000 loans amounting to several billions of Naira going bad because of the current situation.

She warned that the banking sector “remains exposed to shocks from spill over effects of the pandemic on macroeconomic conditions.

“This underscores the importance of regulatory measures to mitigate the effects of the crisis, such as granting forbearance to banks to temporarily restructure loans for businesses and households most affected by COVID-19 and the Global Standing Instruction policy to limit NPLs.”

According to her, “As at end-May 2020, staff reports indicate that 17 banks submitted requests to restructure over 32 thousand loans for individuals and businesses impacted by the pandemic, representing 32.94 per cent of total industry loan portfolio, with the manufacturing and general commerce sectors constituting the bulk of the restructured facilities.

“Results from ongoing impact assessment of COVID-19 effects on impairment by banks, indicate modest impact given regulatory policy measures already implemented.

“These, coupled with close monitoring by authorities and enhanced risk management practices by financial institutions, would help to mitigate the emerging risks and preserve financial system stability.”

However, she said despite this situation, gross credit increased by N3.0 trillion between end-May 2019 and end-April 2020 as a result of the LDR policy.

She said non-performing loans (NPLs) ratio stood at 6.6 percent at end April 2020, compared with 11.0 percent at end April 2019, while other prudential ratios remain robust.

Modupe Gbadeyanka is a fast-rising journalist with Business Post Nigeria. Her passion for journalism is amazing. She is willing to learn more with a view to becoming one of the best pen-pushers in Nigeria. Her role models are the duo of CNN's Richard Quest and Christiane Amanpour.

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