The Nigerian banking sector bad loans known as non-performing loans (NPLs) dropped to 4.8 percent in December 2021, the lowest since the third quarter of 2015 when it stood at 5.11 percent, according to the Central Bank of Nigeria (CBN).
This implies that the current sector’s NPL level is lower than the prudential maximum threshold of 5.0 percent.
“The decline in NPLs can be attributed to the full reopening of the economy and pickup in business activity level,”Ayodeji Ebo, head, retail investment, Chapel Hill Denham, said.
Most businesses that have restructured their loans would have started servicing as at when due, he said.
Nigeria’s Tier-2 banks maintained an average of _3.8 percent in non-performing ratios in the first half of 2021, lower than 5.0 percent regulatory threshold, according to the latest banking sector report by Afrinvest West Africa.
NPL ratios remained stable in the review period following the Central Bank (CBN)’s forbearance for restructuring loan exposure to critical sectors.
Banks that fall under the category of Tier-2 lenders include Ecobank, which has the highest NPL ratio above threshold (7.4%), FCMB (3.3%) Fidelity Bank (2.8%), and Stanbic IBTC bank (3.2%). Others are Sterling Bank (1.8%), Union Bank (4.3%), and Wema Bank Plc (3.5%) NPL ratios.
Tier-1 banks comprising five lenders maintained an average of_5.1 percent NPL ratios in the first half of 2021, the report stated.
First Bank of Nigeria recorded the highest NPL ratio of 7.1 percent which was higher than 5.0 percent regulatory threshold. This was followed by GTCO (6.0%), Zenith Bank (4.5%), Access Bank Plc (4.3%) and UBA which has a 3.5 percent NPL ratio.
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Data from the National Bureau of Statistics (NBS) on year-on-year sectoral changes in NPLs between December 2019 and 2020 show that capital market accounted for the highest NPL of 487.49 percent valued at N0.27 billion, followed by the administrative and support services sector with 397.71 percent NPLs (N4.51 billion), and construction was 97.44 percent (N84.19 billion).
Oil and gas accounted for 43.70 percent of total NPLs valued at N95.91 billion, the manufacturing sector accounted for -3.33 percent NPLs (N3.43 billion) and agriculture -23.31 percent of bad loans valued at N-12.02 billion. Sectoral total NPLs stood at 15.69 percent valued at N166.29 billion.
The Monetary Policy Committee (MPC), which met for the first time in the year on Monday and Tuesday in Abuja noted the sustained resilience of the banking system, following the progressive improvement in the Non-Performing Loans ratio from 5.10 percent in November 2021 to 4.85 percent in December 2021- a first in a long time.
According to Godwin Emefiele, governor of the CBN, after the meeting, the banking sector indices, in the consideration of members, showed no less resilience, as other macroeconomic indicators reviewed; even as obvious downside risks associated with the Pandemic continued to impact the business environment.
“Members thus applauded the Management’s efforts in ensuring the continued downward trend of NPLs ratio, signifying improving conditions in the banking system. Nevertheless, Members emphasized the need for the Bank to closely monitor developments in the sector and swiftly respond to any emerging challenges,” Emefiele said.
The committee also noted that the liquidity ratio remained well above its prudential limit at 41.3 percent, though Capital Adequacy Ratio (CAR) declined marginally to 14.53 percent in December 2021 from 14.90 percent in the previous month. The committee urged the central bank to sustain its firm regulatory surveillance.
Emefiele said in November that the banking sector remained robust and sound due to prompt response by the Central Bank in order to prevent an economic crisis from spilling over into a financial crisis.
Banking industry credit grew from N19.39 trillion in October 2020 to N23.49 trillion in October 2021, according to the CBN.
“The CBN must continue to explore ways of further de-risking the critical sectors of the economy to enable the deposit money banks to lend to them. As CBN interventions cannot continue in the long term, domestic banks must take on the responsibility of supporting households’ credit and the Micro Small and Medium Enterprises (MSMEs)”, Festus Adenikinju, member of the MPC said in his personal statement in the November 2021 meeting.
