Banks’ non-performing loans decline to 3.9% on CBN’s policy – MPC members

The Nigerian banks’ Non-Performing Loans (NPLs), also known as bad loans, declined to 3.9 percent in June 2024 compared with 4.8 per cent in April 2024.

This reflects improvement in industry risk management practices and implementation of regulatory policies to manage NPLs, such as the Global Standing Instruction (GSI) policy, according to Bala Moh’d Bello, member of the Monetary Policy Committee (MPC), in his personal statement at the last meeting in July 2024.

The CBN, on July 13, 2020, issued a guideline on GSI to enhance loan recovery across the banking sector, which took effect from August 1, 2020.

The objectives of GSI include: facilitation of an improved credit repayment culture; reduction of NPLs in the banking industry; and watch-listing of consistent loan defaulters.

The GSI was expected to serve as a last resort by a creditor bank, without recourse to the borrower, to recover past due obligations (principal and accrued interest only, excluding any penal charges) from a defaulting borrower through a direct set-off from deposits/investments held in the borrower’s qualifying bank accounts with participating financial institutions.

Bandele A.G. Amoo, another member of the MPC, said the banking industry was relatively stable and sound as at end June 2024, given that the solvency and liquidity ratios, amongst other indicators, remained within the set regulatory thresholds. “The NPL, Capital Adequacy Ratio (CAR) and Liquidity Ratio (LR) remained within the maximum regulatory thresholds,” Amoo said.

Corroborating Bello, Muhammad Sani Abdullahi, another member of the MPC, said the trend of financial soundness indicators shows that overall the financial system remains liquid, sound, and safe as the industry NPLs remain below the prudential maximum of 5 percent.

He said it decreased slightly to 3.9 per cent in June 2024 from 4.1 per cent in December 2023, attributable to the impact of the depreciation of the naira.

“It is expected that the recently announced banking system recapitalisation will propel Nigerian banks to be better positioned to contribute to the real sector growth and financial inclusion agenda,” he said.

In her personal statement at the last MPC meeting in July 2024, Lydia Shehu Jafiya, another member of the MPC, said despite current macro-economic challenges, the banking industry remains sound, as Financial Soundness Indicators (FSIs) are within their regulatory provisions.

Data from the National Bureau of Statistics (NBS) and the CBN show that the ratio of banks’ NPLs dropped to 4.4 percent at the end of May 2023 compared to 15.01 percent recorded in 2017.

The continuous decline in NPL is attributable to write-offs, restructuring of facilities, Global Standing Instruction and sound credit risk management, according to Sanusi Aliyu, a former member of the MPC.

For the World Bank Group in 2023, the improvement has been driven by recoveries, sales, and write-offs as well as the overall growth in the loan portfolio.