Banks keep NPLs down despite rising lending


Nigerian bank executives may have finally learned the lessons of caution and transparency from their bitter past experiences with the challenge of non-performing loans, NPLs, especially in times of economic hardship like the one prevailing in the economy. current. Since the beginning of the liberalization of the banking sector in the early 1990s, each economic crisis has weighed heavily on banks, leading to liquidations.

However, available statistics suggest that Nigerian banks have maintained stability in the management of their non-performing loans (NPLs) during the current crisis, with most of them registering a continued decline in this segment of their finances, even as their credit side was increasing.

A non-performing loan (NPL) is a loan in which the borrower is in default and has not made any scheduled payment of principal or interest for a certain period of time.

Analysts said NPL ratios in the banking sector remained stable in 2021, following the CBN’s refraining from restructuring lending exposure to critical sectors.
At the last Monetary Policy Committee (MPC), a member of the Deputy Governor of the Central Bank of Nigeria (CBN) Committee, Aisha Ahmad, said that the NPLs had fallen to their lowest level in over a decade. despite the increase in bank lending.

She noted that total credit increased by 4.09 billion naira between the end of December 2020 and December 2021, with significant growth in credit to the manufacturing, general trade and oil and gas sectors.

She said: “Key industry aggregates also continued their upward year-on-year trajectory with total assets rising to N59.24 billion in December 2021 from N50.99 billion in December. 2020, while total deposits increased to N38.42 billion from N32.21 billion during the period. same period.

“Total credit also increased by N4.09 billion between end-December 2020 and end-December 2021, with significant credit growth to the manufacturing, general trade, and oil and gas sectors.

“This impressive increase was achieved amid a continued decline in the non-performing loan ratio from 5.10% in November 2021 to 4.94% in December 2021, 6 basis points below the regulatory benchmark for the first time. over a decade.”

An excerpt from Banks Performance revealed that Guaranty Trust Holding Plc (GTCO) reported a decline in its NPL to 6.04% in 2021 from 6.39% in 2020, while ETI Nigeria reported an NPL ratio of 16.30 in 2021 compared to 19.90% in 2020.

GTCO, in a presentation to investors/analysts, explained: “The Group has improved the quality of its assets with IFRS 9 Stage 3 loans closing at 6.04% in 2021 compared to 6.39% in 2020.

“The marginal increase in prudential NPLs from 6.86% to 6.92% was the result of stress noted with certain exposures within the hospitality industry, individuals, clubs, cooperative societies and trade unions, as debtors of these sectors have been severely affected by Covid -19.

“The downstream sector benefited from the write-off of N7.2 billion in FY 2021, with its NPLs dropping from 11% in 2020 to 8.6% in 2021.

“IFRS 9 Stage 3 loans closed at N113.9 billion from FY 2021, up 2.2% from N111.5 billion in 2020. Stage 3 / Lifetime Credit Impaired Exposures closed at N57.5 billion, representing 50.5% coverage of loans in this classification.
“In aggregate terms (including regulatory risk reserves of N87.6 billion), the group has an adequate coverage of 150.4% for its Phase 3 names/NPLs, this position is in line with the plan of the group aiming to maintain 100% coverage for its NPLs. ”

United Bank for Africa Plc (UBA), Access Bank and Zenith Bank, among other banks, reported an NPL ratio below 5% in fiscal 2021.

UBA’s NPL fell to 3.60% from 4.70% in 2020. Speaking on the decline in its NPL performance, UBA Group Chief Financial Officer Ugo Nwaghodoh said: “This is a testament to the quality of UBA’s loan portfolio even as the bank remains relentless in its resolve to drive down the cost/income ratio, which stood at 63.0% at year end.

Access Bank reported an NPL ratio of 4.00% in 2021 from 4.30%, while Zenith Bank reported an NPL ratio of 4.20% in 2021 from 4.30% in 2020. Stanbic IBTC Holdings reported reported an NPL ratio of 2.10% in 2021 versus 4.00% in 2020. .

Stanbic IBTC chief executive Dr. Demola Sogunle said in a statement that the NPL ratio moderated to 2.1%, well below the acceptable limit of 5%, as total NPLs declined in value of 23% coupled with responsible loan growth in line with management’s prudent credit risk management practices.

In addition, Wema Bank reported that the NPL ratio fell from 4.9% in 2020 to 4.5% in 2021, just as the Union Bank of Nigeria’s NPL ratio fell from 4.00% to 4, 30% in 2021. The FCMB group however closed 2021 with 4.10 NPL ratio of 3.3% in 2020.

It is no wonder that MPC members applauded management’s efforts to ensure the continuation of the downward trend in the bad debt ratio, which they say means improving conditions in the banking system.

MPC members also noted the continued resilience of the banking system, following the gradual improvement in the NPL ratio from 5.10% in November 2021 to 4.85% in December 2021 – a first for a long time.

“With the decline in the size of NPLs, one would expect bank liquidity to be buoyant enough to extend more credit to grow the economy,” said economist Victor Opara.

For Opara, this is a good way for banks to start making more profits if development can be sustained.
He speaks further: “A huge bad debt portfolio is the bane and nightmare of most banks.
“It is common knowledge that most major banks that failed in the past were the result of huge toxic loans on their books, which greatly reduced their liquidity to meet depositors’ obligations as they came due.”

However, there are concerns that this is not a true reflection of bad debts in the country given the recession and the level of economic crisis in the country.

A former banker and senior partner, Patrick Modilim & Co, believes that NPLs are down because banks are not following prudential guidelines due to the global economic crisis occasioned by the COVID-19 pandemic.

Modilim described 2020 as a special year globally of weak economic activities, with many organisations, including banks, operating below capacity even in the area of ​​credit provision.

In a phone interview with Business Hallmark, Modilim said, “If they (the banks) were to follow prudential guidelines, there’s no reason for NPLs to go down in a time when most individuals and organizations don’t don’t have the ability to live up to loan obligations.
“Even most banks don’t lend. So if you’re not lending, how do you record bad debts in your loan records?

“Many banks believe it is better and safer to be sanctioned by the CBN than to make loans they are not sure they will collect.”

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