Non-performing loans in banks hit 5.1% – World Bank

The World Bank has revealed that non-performing loans across Nigerian banks have reached an alarming 5.1 percent, according to a report.

The Nigeria Development Update published by the global apex bank disclosed that the ratio of NPLs to total loans increased by 0.6 percent to 5.1 percent in the first quarter (Q1) of 2024, compared to Q1 2023.

“This ratio is marginally above the prudential benchmark of 5.0 percent,” it said.

Non-performing loans are those whose obligation to pay or service has not been met by the debtor at the stipulated and agreed time.

When the bank’s non-performing loans is a ratio above 5 percent, then a slightly higher percentage of loans are at risk of default than what is generally considered safe.

The World Bank also noted that the banking system’s capital buffers have been eroded, emphasising that the banking system’s capital buffers have been eroded due to high inflation, significant depreciation of the naira, and the increase in the NPL ratio.

“The capital adequacy ratio of the banking system was 11.1 percent in Q1 2024, down from 14.2 percent in Q1 2023.”

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The document also recalled the instance of the Heritage Bank, which led to the revocation of its licence by the Central Bank of Nigeria (CBN).

“In June 2024, the CBN revoked the banking license of Heritage Bank, citing the bank’s poor financial performance and a situation that constituted a threat to financial stability.”

“The NDIC was promptly appointed as the liquidator in line with Nigeria’s bank resolution framework. According to the NDIC, at the time of its failure, Heritage Bank had 2.3 million depositors (99 percent of which had deposits under the deposit insurance coverage amount of NGN5 million), total deposits of N650 billion, and a loan portfolio of N700 billion.”

The loan healthiness of banks has continued to be an issue in Nigeria.

Recently, Femi Falana, a Senior Advocate of Nigeria (SAN), noted that over N5.4 trillion loans had not been recovered by commercial banks in Nigeria.

“AMCON is owed N5.4 trillion by the rich. A few years ago, commercial banks were going to collapse due to toxic loans taken by members of the ruling class.

“To prevent the impending economic doom, the Federal Government set up the Asset Management Corporation of Nigeria (AMCON) to buy off the loans with trillions of Naira provided by the CBN.

“AMCON has not been able to recover the loans of N5.4 trillion from about 370 corporate bodies,” he stated.