The non-performing loan ratios for Nigerian banks worsened in 2020, blowing past the regulatory limits of 5 per cent to close at 6 per cent at the end of December 2020, according to a communique issued by the Central Bank of Nigeria monetary policy communique.
It is on record that most large banks that went under in the past were as a result of humongous toxic loans in their books, which largely squeezed their liquidity to meet depositors’ obligation as at when due.
According to CBN Governor, Godwin Emefiele, Banks NPLs rose to 6.01 per cent at the end of the year 20 per cent higher than the regulatory allowed 5 per cent allowed by the apex bank.
As of the third quarter of 2020, the non-performing loans in Nigeria was about N1.1 trillion with oil and gas loans representing N238 billion or 11.3 per cent of the total.
The rise in banks’ non-performing loan ratios is mostly due to the weakening economy in 2020 triggered by the economic lockdown introduced to curb the spread of Covid-19.
The highest surge in the NPL volume was contributed by the Transportation and Storage sector with 26.87 per cent, with the NPL volume increasing to N46.99 billion in Q3 2020 from N37.04 billion in Q2 2020, followed by Power and Energy with 6.17 per cent, moving from N30.81 billion in Q2 2020 to N32.71 billion in Q3 2020.
The NPL volume as at Q3 2020 increased by 6 per cent (YoY) compared to what it was in Q3 2019. The Gross loan portfolio (GLP) of the banks increased by 17 per cent in Q3 2020 compared to Q3 2019 (YoY) and 3 per cent compared to Q2 2020 (QoQ).
With the economy shut down for the most part of the year, businesses in the country recorded little to zero sales affecting their ability to service their loans as and when due.
The CBN’s policy of persuading banks to lend more may have also increased the NPL ratio, as increased lending to the private sector in a year where the economy was battered also led to higher non-performing loans.
Banking sector credits rose by as much as 19 per cent in 2020 according to data from the National Bureau of Statistics as banks aggressively lent more in line with the CBN’s loan to deposit ratio policy.
The CBN also recognizes the inertia caused by its policy when it stated that “Aggregate domestic credit, also moved further up by 13.40 per cent in December 2020, compared with 9.48 per cent in the previous month.
This was largely attributed to the Bank’s policy on Loan-to-Deposit Ratio (LDR), complemented by its interventions
Nigeria’s NPL ratio of 6 per cent could have been worse than it currently is where it is not for the regulatory forbearance granted by the central bank due to the Covid-19 pandemic.
A recent EFG Hermes report alludes to this when it maintained that their positive outlook for Nigerian banks was also “largely attributable to the lenient forbearance policy adopted by the CBN, which has allowed banks to restructure a significant proportion of their loan books (43 per cent as of Sept) and not make any significant provisions on the same.”
A non-performing loan (NPL) is a loan in which the borrower is in default and hasn’t made any scheduled payments of principal or interest for over a certain period of time.
