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Published On: Sun, Mar 11th, 2018

How Access, GTB lead others in keeping low NPL


Access and GT Bank have led their rivals in keeping down non-performing loans (NPLs) as a proportion of their total loan portfolios as the industry delicately recovers from a meltdown that started in 2016. The two banks navigated around a recession (the first in 25 years) that sent manufacturers and other businesses spiraling into low level activities as Nigeria’s banking sector saw red with average non-performing loans rising to over 10 per cent or two times the officially sanctioned rate.

The country’s 16-month recession between January 2016 and June 2017 had a devastating impact on the banking sector, causing loan impairments to hit the roof. The Central Bank of Nigeria (CBN) jettisoned its five per cent prudential non-performing loans (NPLs) benchmark, when oil prices and output decline resulted in an economic crunch which propelled the distressed loans of banks to rise over 15 per cent of their average loans outstanding. It was worse for Deposit Money Banks (DMBs) which were heavily exposed to the oil and gas and energy sectors.  Several bank debtors in other sectors equally had challenges servicing their loan obligations.

Despite the loan bust which caused the non-performing assets of banks to buckle  and saw banks like First Bank suffer a staggering 20.1 per cent ratio, only six of the 13 listed banks on the stock exchange (NSE) saw third quarter (Q3) 2017 figures maintain a NPL ratio under five percent. Access Bank led this pack of lenders, by keeping its NPL ratio at 2.5 per cent. GT Bank followed with a ratio of 3.9 per cent; UBA 4.2 per cent; Zenith Bank 4.2 per cent; and FCMB and Wema Bank, had ratios of 4.7 per cent and 4.9 per cent.  Seven of the lenders had an average NPL ratio of 9.7 per cent at the end of Q3 2017. The NPL figures for Unity Bank and Skye Bank are not available.

With the economy taking a positive turn, by exiting a crippling recession in Q2 2017 on the back of oil price recovery the outlook for bank NPL’s in 2018 looks a lot healthier. Just recently, the regulator stopped all commercial lenders whose NPL ratio had risen above the regulatory benchmark and fell below certain Capital Adequacy Ratios (CaR) criteria from paying dividends to their shareholders, starting from the 2017 financial year. The CaR benchmarks are ratio below 16 per cent for systemic important banks (SIB’s) and 15 per cent and 10 per cent for tier-2 banks, depending on their ratings. And last week, the International Monetary Fund (IMF) counseled the CBN to take further steps to curtail high NPLs in the country’s banking industry, which has mounted pressure on commercial lenders.

To address its NPL challenges, First Bank, Nigeria’s largest bank by revenue, has lowered its risk appetite, according to its managing director, Mr. Adesola Adeduntan, arguing that the recession in 2016 disrupted the capacity of companies to meet loan obligations to lenders, prompting a surge in bad debts. He, however, maintains that NPLs will continue to trend downward.

“With Non-performing loans going down it does seem to suggest that banks have simply lowered their lending. Manufacturers have run away from the financial sector because of stiff costs.  Inflation has remained high, although falling, and the government has continued to borrow heavily. On a sensible risk-reward calculation banks have preferred to lend to the public sector,” claims Dr Adi Bongo, Faculty member, Lagos Business School.

One of the tricks lenders employed to stem their NPLs, was for them to cut their loan portfolios in Q3 2017. For instance, Zenith Bank, the country’s largest in terms of assets size pruned its gross loans and advances by -3 per cent in Q3 2017. While it increased its net interest income by meager 6.2 per cent during the period, its non-interest income ballooned by 79 per cent. In the same vein, GT Bank slashed its loan book by -10 per cent. Meanwhile, UBA due to its strength in the African market grew its risk assets by 6 per cent in its nine month financials for 2017.

The Chief Financial Officer, Wema Bank, Tunde Mabawonku attributed the bank’s 4.9 per cent NPL ratio to good risk management, which drove the bank to be very selective in its sector exposure. During the turbulent period, Wema Bank made it a policy not to lend to SMEs for example. Many lenders like Wema Bank were also wary of the oil and gas and energy sectors. “Those who were heavily exposed to the oil and gas and energy sectors were the ones that their NPL spiked, because these sectors have in recent times been very risky. During global economic crises, many of the oil companies were unable to service their loans. Many of the larger banks found it difficult to keep their NPLs below 5 per cent,” explains Akintoye Ayorinde, analyst, Research and Securities, Afrinvest (W/A) Ltd.

With the economy out of recession by June 2017, many banks became harder on delinquent customers, going to the point of naming and shaming them on the pages of newspapers.  “Their loan books were conservative and they were very aggressive in their loan recovery as part of efforts to curtail their high NPL’’, said Moses Ojo, head, research and business development, Pan African Capital Plc.

High appetite of the federal government in 2017, which pushed coupon rates on bonds and treasury bills to around 18 per cent, provided many lenders safe haven. They lashed on to the opportunity to grow their revenue without fear of default risk. For instance, GTB ank which scaled down its risk asset by -10 per cent in Q3 2017, increased its revenue from fixed income instruments and foreign exchange by a whopping 230 per cent with income from bonds up 590 per cent and treasury bills climbing 375 per cent. Even UBA’s income from securities and forex accrued 41 per cent underpinned on 143 per cent rise in fixed income securities and 82 per cent upsurge in forex trading income.

“2017 witnessed a crowding out of private sector lending following the attractive yields on treasury bills and the state of the economy. Consequently, credit growth was muted as some banks didn’t see the need to aggressively grow their loan book,” GTBank stated in its Macroeconomic and Banking Sector Themes for 2018 released recently.

Meanwhile, the federal government has decided to trim out its domestic debt in 2018. It has concluded plans to expend $3 billion of the $5.5 billion Eurobond it plans to raise in the course of the year. It this would adversely impact of banks’ revenue from securities. Banks may be forced to disburse more loans in order to shore up their interest income to make up for the declining yield in the securities market.


Another issue lenders in the country would struggle with this year is the burden of increased provisioning, which comes along with the implementation of IFRS 9, which replaced IAS 39 that came into force on January 1, 2018. The policy requires DMBs to make provisions for expected toxic loans, a departure from IAS 39, which required them to provide basically to only credits that have gone bad. IFRS 9 would put further pressure on the commercial lenders as their NPL ratio is expected to go higher.

“In view of the transitional entries to be taken in January 2018 in line with the provisions of IFRS 9, we except that most banks would have taken proactive steps of stressing their books to ascertain the potential effects of IFRS 9 and also identify measures to mitigate the potential shocks on their books,” GT Bank asserted in its economic outlook for the year.


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