Reduction of NPLs in Banking Sector Gladdens CBN

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By Dipo Olowookere

The Central Bank of Nigeria (CBN) has expressed its delight over the reduction of non-performing loans in the banking sector.

Governor of the central bank, Mr Godwin Emefiele, expressed this excitement on Tuesday while addressing reporters in Abuja after the Monetary Policy Committee (MPC) meeting, where rates were left unchanged.

During his presentation of outcome of the meeting, Mr Emefiele said this development will have a positive impact on the results of banks when they release their financial results.

According to the apex bank chief, this impact would be felt in the balance sheet of the deposit money banks.

The issue of bad loans has been very worrisome in the banking system because of the exposure of financial institutions to debts.

Most of the bad debts are from the oil and gas companies, contractors, businessmen and politicians, who took huge loans from banks to carry out their operations.

Few years ago, a telecom company, 9mobile, formerly known as Etisalat Nigeria, approached a consortium of 13 Nigerian banks for $1.2 billion loan.

However, due to devaluation of the Naira and recession in 2016, the company was unable to repay the loan as expected.

Efforts were made by the lenders to take over the firm, but the CBN and the Nigerian Communications Commission (NCC) stopped this.

Instead, an interim management was set up to run the company until a buyer was seen and few months ago, Teleology Holdings was finally announced as the new owners of 9mobile, with some money paid to the banks to reduce the debt.

In his address on Tuesday, Mr Emefiele said, “The committee also noted with satisfaction the gradual reduction in non-performing loans of the deposit money banks (DMBs) which has further strengthened their balance sheets.

“The committee believes that as government pays off contractor debt and other obligations, there will be a sizable reduction in the NPLs of the banking system.”

Some days ago, First Bank’s chief executive, Mr Adesola Adeduntan, said the bank was planning to reduce its NPL ratio to a single digit by end of 2019. The lender is one of those heavily exposed to bad loans.

Another bank, Diamond Bank, is believed to be merging with Access Bank because of debts it has to settle, while Skye Bank was nationalised to Polaris Bank last year because of bad loans.

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