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 he latest banking sector report by Afrinvest West Africa.
NPL ratios remained stable in the review period of following the Central Bank of Nigeria (CBN)’s forbearancefor 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 of 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 3.5 percent NPL ratio.
“The Non-Performing Loan ratio (NPL) at 5.3 per cent in October 2021, reflectd progressive improvement, compared with 5.7 per cent in October 2020,” Godwin Emefiele, governor of the CBN said at the last Monetary Policy (MPC) in November.
The Committee, however, urged the Central Bank to sustain its tight prudential regime to bring the Non-Performing Loan (NPL) ratio below the 5.0 percent prudential benchmark,” at the last Monetary Policy (MPC) in November.
Read also: Banks show resilience but rising credit exposure, NPLs are concerns – IMF
Amidst the tough macro and tight regulatory environment, banks remained resilient. This is evident in banks delivering a 15.6 percent and 6.8 percent y/y growth in total assets and profit respectively in H1:2021 despite elevated the Cash Reserve Ratio (CRR) debits and compulsory Loan To Deposit Ratio (LDR) levels. With the pandemic, the Nigerian Banking sector vulnerability heightened which required swift policy responses from the CBN.
Consequently, the CBN rolled out stimulus packages to critical sectors with significant loan exposure, reduced interestrate on intervention facilities (from 9.0% to 5.0%) and granted banks the forbearance to restructure loan exposure. As a result, real GDP growth in the financial institutions sector grew by 13.3 percent y/y.
Nonetheless, the sector’s earnings and profitability slowed in 2020, hurt by the stringent implementation of the CRR policy (27.5%) which effectively sits at north of 50.0 percent for some banks due to CBN’s non-refund policy and the discretionary excess debits. In addition, the low interest rate environment in H2:2020 and H1:2021 drove weak yield on assets for the sector despite the drive to expand asset base. These factors coupled with deposits reduction in both consumer and business segments, exposure to currency risk and increased credit default, affected Nigerian bank’s profitability. Consequently, aggregate gross earnings for the banks within Afrinvest’s coverage (5 Tier-1 and 8 Tier-2 Banks) marginally grew by 2.8 percent in 2020 relative to 9.9 percent in 2019. Meanwhile, earnings weakened as the industry’s PBT fell 30.2tn compared to an 11.1 percent increase in the preceding 12-months, according to data obtained from the CBN website. Industry non-performing loan (NPL) ratio in 2020 improved to 4.4 percent from 5.3 percent supported by the CBN’s regulatory forbearance to boost asset quality. However, Cost of Risk (CoR) weakened to 1.2 Per in 2020 from 0.9% as impairment charges surged 105.5 percent to N392.5bn from N91.0bn in 2019 iven the increases in stage 3 loan classification.
Industry Capital Adequacy Ratio (CAR) improved to 19.4% in 2020 relative to 18.7 percent in 2019 (ex. Unity Bank), reflecting the banks resilient. This was higher than the prudential regulatory thresholds of 10.0 , 15.0 percent and 16.0 percent for national banks, international banks, and Domestic Systemically Important Banks (D-SIBs).
