Banks’ bad loans rise by 50% to N2.4tn

The economic challenges in the country made the level of non-performing loans in the Deposit Money Banks to rise by 50 per cent from N1.639tn in December 2016 to N2.424tn by September this year, according to the Nigeria Deposit Insurance Corporation data.

The CBN’s non-performing loans ratio in the banking industry is five per cent, but the banks’ NPLs have moved from 10.13 per cent to 15.18 per cent within the period, the financial returns of the DMBs compiled by the NDIC revealed.

According to the NDIC data, the NPLs grew from N1.639tn in December 2016 to N1.921tn in March 2017, declining to N1.880tn in June but rising to N2.424tn in September this year.

The data, however, showed that total loans and advances by the banks decreased within the period before rising again.

Total loans and advanced decreased from N16.183tn in December 2016 to N16.076tn in March 2017 and N15.783tn in June, before rising to N15.976tn in September.

The Director, Banking Examination Department, NDIC, Mr. Adedapo Adeleke, disclosed the figures in a presentation entitled: ‘Curtailing the growth of non-performing loans in banks – The role of regulators and supervisors.’’

The table of the NPLs was obtained by our correspondent on Monday.

Adeleke said, “The table showed that while the NPL ratios and the volume of non-performing loans continued to grow up till September 2017, the total loans advanced by the industry continued to decrease in volume as banks curtailed lending and concentrated on loan recovery drives.

“Those developments were worrisome for an industry that has battled headwinds through the years and suffered colossal losses due to bad loans. The NPL to total loan ratio in the banking industry has risen significantly since 2015 and has gone well beyond the maximum regulatory limit of five per cent.

“The rise has been largely attributed to the fall in crude oil price and production levels arising from the militancy in the Niger Delta.”

According to the NDIC director, the risk assets examination of 20 banks as of December 31, 2016, revealed that of the total industry loan portfolio of N15.597tn, the sum of N3.105tn (or 19.91 per cent) was non-performing.

He said the 19.91 per cent NPL ratio was 79.04 per cent increase over the average industry ratio of 11.12 per cent recorded as of December 31, 2015.

Adeleke said, “The Financial Stability Report for 2017, issued by the CBN, indicated that the ratio of NPLs net of provision to capital for the banking industry increased to 38.4 per cent in 2016 from 28.4 per cent as of December 31, 2015.

“Also the Financial Stability Report issued by the CBN as of December 31, 2016 indicated a disproportionate credit allocation to the oil and gas sub-sector by the Nigerian banks.

“Sectoral allocation to oil and gas as of December 31, 2016 was 29.59 per cent. Manufacturing, general commerce and government were 13.41 per cent, 8.71 per cent and 8.34 per cent, respectively. Others comprising of telecoms, power, real estates and services, among others, accounting for 39.95 per cent.”

He traced the causes of the rising NPLs in the banking sector to banks’ lending policies, which he said had been relatively unselective and competition-driven, with little consideration for associated risks.

Others are inadequate appraisal of loans and poor assessment of obligors and sectors in which they operate, leading to loan concentration and lowering of under-writing standards; rapid credit growth associated with lower credit standards; and poor GDP growth rate, which became negative in the first quarter 2016 and resulted in recession by the second quarter of the year.