N1.3trn NPLs, recovery hurdles hurt banks’ operations

Banks fund 273,435 businesses with N1.8tr loan –CBN

By Omodele Adigun

As Non-Performing Loans (NPLs) in the banking sector ballooned to N1.3 trillion as of last November, lenders are raising the red flag that the humongous debts are crippling their operations , putting them under the risk of regulatory forbearance or systemic failure as  recovery efforts are hampered by inefficiencies of the system.

Lamenting this scenario  recently,  Central Bank of Nigeria (CBN) Deputy Governor in charge of Financial System Stability,  Mrs. Aisha Ahmad, decried some bank customers penchant for defaulting on their loans, blaming the trend for poor credit growth in the country

 “Now we are not unaware of some of the challenges or reasons why credit have not been growing. Part of that is the appetite of banks to lend especially when you have customers that   wilfully refuse to repay their loans” She said. 

Also voicing his concern for this ugly development, Managing Director of Bank of Industry (BoI), Mr Olukayode Pitan, recently blamed some local entrepreneurs’ habit of not wanting to repay loans taken form lenders, stressing that his bank’s non-performing loan portfolio awarded to entrepreneurs ranges between 80 and 100 per cent.

For his part, Special Adviser to Ekiti State Governor on Micro-credit and Enterprise Development Agency, Kayode Fasawe, stated recently that “the attitude of the people on loan repayment has deprived the state the opportunity of accessing further funds from CBN. This has been counterproductive to the economic development of the state.”

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On the Ekiti state issue, the Director of Small and Medium Enterprise in the Ministry of Investment, Mr Ayo Ilesanmi, speaking in the same vein, said it was quite disheartening that loans beneficiaries in the state considered the money as free gift or their own share of the national cake.

And out of N1.23 trillion NPLs recorded by banks at the end of 2020, the National Bureau of Statistics (NBS)  recently disclosed that the NPLs in the power sector stood at N33.22 billion. The CBN had also reported that the combined indebtedness of power firms to the banking sector stands at about N820 billion. While the unpaid UBA loans had led to the take-over of the Abuja Electricity Distribution Company (AEDC), Assets Management Corporation of Nigeria (AMCON) last Thursday also took over Ibadan Electricity Distribution Company (IBEDC) Limited over its inability to clear its acquisition loan from Skye Bank, now Polaris Bank.

Meanwhile, analysis of the results of Union Bank of Nigeria Plc, Ecobank Transnational Incorporated (ETI) Nigeria Plc, Wema Bank Plc, FBN Holdings, Sterling Bank Plc and FCMB released to the Nigerian Exchange Limited (NGX) showed that, while some of the lenders have reduced their NPLs, others only recorded marginal increase. For instance, Union Bank recorded marginal increase in its NPLs ratio during the period, while Wema recorded significant drop in its NPL ratio.

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However, ETI Nigeria and FBN Holdings are the only two banks with NPL ratios above the regulatory threshold in first half (H1) of 2021.

As reported in the first six months of the year’s unaudited results, Ecobank Nigeria’s NPLs dropped to 17per cent from 19.9 per cent recorded in H1 2020, while FBN Holdings reported 7.2 per cent NPL/Gross Loans from 8.80 per cent recorded in H1 2020. FBN Holdings’  Group Managing Director, Urum Kalu Eke, had, while commenting on the bank’s H1 results, said the macro and socio-economic conditions remain challenging, given the COVID-19 pandemic and the low-interest rates environment.

He added that the bank remains committed to its strategic objective of driving further stability in performance, as well as delivering sustainable growth over the years to come.

Wema’s NPLs closed H1 2021 at 3.5 per cent from 5.6 per cent in H1 2020 just as Sterling Bank’s NPLs declined from 1.9 per cent in H1 2020 to 1.79 per cent in H1 2021.

In addition, FCMB Group’S NPLs declined from 3.5 per cent in H1 2020 to 3.3 per cent in H1 2021, while Union Bank of Nigeria’s NPL ratio increased to 4.30 per cent in H1 2021 from 4.00 per cent recorded in H1 2020.

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Further analysis showed a 13.4 per cent increase in FCMB Group NPLs to N3.78 billion in H1 2021 from N2.55 billion, dragging the financial institution NPLs by value to N32.21 billion in H1 2021 from N29.77 billion recorded in H1 2020.

Analysts attributed banks decline in some bank’s NPLs to ease of COVID-19 lockdown, effective management of credit risk and reduction of risk to some sectors. FBN Holdings in its H1 2021 reported 20 per cent drop in Impairment charge for losses to N24.5 billion in H1 2021 from N30.7 billion reported in H1 2020, while FCMB Group Impairment losses on financial instruments dropped by 48 per cent to N4 billion in H1 2021 from N7.74 billion reported in H1 2020.

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