Published On: Sun, Jul 22nd, 2018

Top banks battle rising NPLs; 2 lose top rating

By FELIX OLOYEDE

In the face of daunting economic challenges, commercial lending institutions called Systemically Important Banks  (SIBs) continue to lead the Nigerian financial services sector despite their struggles with high non-performing loans (NPLs) and shrinking operating margins.

The Central Bank of Nigeria (CBN) in September 2014, issued a framework for SIBs, which was scheduled to become operational in March 2015.

First Bank of Nigeria Limited, Guaranty Trust Bank Plc (GTBank), Zenith Bank Plc, United Bank for Africa Plc (UBA), Access Bank Plc, Skye Bank Plc, Ecobank Nigeria and Diamond Bank Plc were designated as SIBs based on their impact on the Nigerian financial sector.

All the banks the CBN tagged “Too big to fail” have continued to meet the criteria for listing as SIBs, which include the size of their total assets, branch network, capital adequacy ratio (CaR), liquidity ratio, NPLs and so on. Only Skye Bank Plc appears to have failed the majority of regulatory benchmarks, forcing the CBN bank to axe its board and management.

Although the CBN did not officially announced that Skye Bank has been dropped from the SIB log, pundits believe the bank which has failed to publish its financial statements since September 2015, can no longer be considered as “too big to fail”. In 2014, Skye Bank was the fourth largest commercial lender in the country with 469 branches across the country.

While SIBs still account for over 70 per cent of total assets of the country’s banking industry, the total assets of Diamond Bank has shrunk in the last three years. It has dropped -61.92 per cent from N4.34 trillion at the end of 2014 to N1.65 trillion in March 2018, mainly as a result of the adverse impact of falling asset quality and the sell off of its West African operations.

“I am not sure the CBN has changed the conditions (for SIBs). But some banks may have fallen off the wagon on account of the development in the market,” posited Ayodele Akinwunwu, Head, Research, FSDH Merchant Bank.

High non-performing loans have plagued Nigerian banking industry after the country plunged in 16 months recession, which it eventually exited in first half of 2017. But the banks have not recovered fully from the aftermath of the shock as the SIBs continue to struggle with high NPLs. Most banks in the country have overshot the 5 per cent NPL ratio threshold, with the industry average NPL ratio currently standing 13 per cent.

With the worsening of non-performing loans, some banks are no more in the SIBs list, said Moses Ojo, Head, Business Development and Research, PanAfrican Capital Plc.  “A lot of the SIBs are responsible for the large chunk of the NPLs in the industry.”

FirstBank with a NPL ratio of 2.9 per cent in 2014 now has the industry’s highest NPL ratio of 22.8 per cent at the end of 2017 due to its high exposure to the oil and gas and energy sectors. The bank has made significant efforts at trimming down its toxic assets, having reduced its risk appetite substantially.

Diamond Bank has been having issues with its NPL, even before the classification of SIBs. Its NPL ratio stood at 5.1 per cent in 2014 and has worsened to 15.7 per cent in March 2018.

One of the factors considered in classifying SIBs was their branch network. But in the last three years, a lot of banks have rationalized their branches to cope with challenge of operating costs.

Nigerian oldest lender, FirstBank in 2016 shut down some of its branches it tagged as performing below expectation. Similarly, Access Bank shut 130 of its branches and even Standard Chartered Bank, which has only 42 branches in Nigeria closed down some of its branches. Ecobank also merged 74 of its branches as Diamond Bank even went ahead to sell its West African operations recently.

But despite this, Kunle Ezun of Ecobank believes all SIBs were still doing well as their balance sheet size very big.

The apex bank planned to implementation of 16 per cent minimum CaR for SIBs in July 2016, but put it forward infinitely due to challenge in boosting capitalisation levels, especially with the recession the country was grappling with at the time.  SIBs currently have 15 per cent CaR benchmark.

Diamond Bank capital adequacy ratio has dipped to 16.4 per cent at the end of March 2018, from 18.4 per cent in December 2014. The bank’s high NPL in the oil and gas and power and energy sector was largely responsible for the drop in its CaR. But other SIBs have continued to improve their CaR.

© 2018, Hallmarknews. All rights reserved. Reference and link to this site is required if you wish to reuse any article.

Reactions from Facebook

comments and opinions

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Got news for us?

Most Shared

Recent posts

  • Afrinvest set to release 2018 Banking Sector Report on Oct. 22

    Afrinvest (West Africa) Ltd will on October 22, 2018, in Abuja present the 2018 edition of its Annual Nigeria Banking Sector Report to the public. The report titled “An Economic Agenda for a New Government” presents a viable economic roadmap for Nigeria in 2019 and will be launched at the Shehu Musa Yar’Adua Centre, Abuja. […]

  • UBA posts N79bn pre-tax profit for Q3 2018

    United Bank of Africa Plc retained a remarkable growth in profitability for the unaudited nine months financial result and accounts September 30, 2018, with profit before tax closing at N79 billion. The pan-African financial institution reported N78 billion amid a challenging environment. The financial institution in its result to The Nigerian Stock Exchange (NSE) on Tuesday also […]

  • Inflation rate accelerates to 11.28% in Sept

    The Consumer Price Index, (CPI) which measured inflation for September increased to 11.28 per cent (year-on-year) from 11.23 per cent recorded in August, the National Bureau of Statistics (NBS) said on Tuesday. Latest inflation data from for September released by the NBS in Abuja showed that inflation rate was 0.05 per cent points higher than […]

  • Medium, large capitalized stocks return bulls to equity market

    Gains recorded by medium and large capitalized stocks helped the Nigerian Stock market to reverse Monday’s negative sentiment, appreciating 0.95 per cent on Tuesday. The All Share Index (ASI) increased by 308.70 absolute points, representing an increase of 0.95 per cent close to 32,722.18 points. Also, the Market Capitalization was up N112.70 billion, which was […]

  • NSE Wins Best Use of Technology for Efficiency Award

    The Nigerian Stock Exchange (NSE) has received the 2018 Best Use of Technology for Efficiency Award from Nigeria Tech Innovation & Telecom Awards 2018 (NTITA). The NTITTA is the most celebrated industry awards for the Technology and Telecom industries attracting top decision makers in the sectors. The annual event is held to showcase excellence and celebrate the continued growth […]

  • Super Eagles beat Libya, top Group E

    The Super Eagles now stay at the top of their group standings as they endured a scare in Tunisia to claim a third consecutive victory An Odion Ighalo-inspired Nigeria secured a 3-2 victory over Libya to move to the top of Group E in their 2019 African Cup of Nations qualifiers in Sfax. Goal.com reports […]

  • NDLEA FCT nabs 147 drug dealers, seizes $1.9m in one month

    The National Drug Law Enforcement Agency (NDLEA), FCT Command, said on Tuesday that it arrested 147 suspected drug dealers and seized various consignment of drugs. Mrs Chinyere Obijuru, Commander, NDLEA FCT Command, told newsmen in Abuja that the command in its sting operation that commenced on September 1, also seized fake 100 dollar bills amounting […]

  • PENGASSN tasks govt on quick minimum wage resolution

    The Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has urged the Federal, state governments and organised private sector to resolve the differences in the ongoing negotiation for a new minimum wage in the country. The National President of the Union, Mr Olabode Johnson made the appeal while addressing newsmen on its planned […]

  • Court nullifies Unity Bank Executive Director’s sack

    The National Industrial Court, sitting in Ikoyi, Lagos State, on Monday voided the termination of employment of Mrs Arese Alonge, declaring her a subsisting Executive Director of Unity Bank. The court ordered the bank to pay all entitlements and benefits that pertain to her office. Alonge had on Feb. 11, 2015 instituted a suit against […]

  • Traders tasks politicians on accountability

    The National Association of Nigerian Traders (NANTS) has called for accountability from in-coming governments, insisting that they must keep their promises. President of the association, Mr Ken Ukaoha, made the call at the public presentation of “Framers Manifesto and Traders Charter Demands’’ in Abuja on Monday. “We are gradually coming back to our senses to […]

  • Kayode Fayemi and the Ekiti conundrum

    By TESLIM SHITTA-BEY Ekiti state’s newly elected governor Kayode Fayemi is a brilliant conversationalist and an engaging debater. Nevertheless, with the state he is about to take over as governor locked within a time capsule of slow growth; the usually voluble gentleman will have no time for banter. According to Emmanuel Aremu indigene of Ondo […]

  • The Buhari era:  How the president is reshaping Nigeria after his own image

     By AYOOLA OLAOLUWA On May 29, 2015, President Muhammadu Buhari assumed office, and there were great expectations from Nigerians. While campaigning, the Daura-born president centred his campaign on five focal points: building the nation’s infrastructures, job creation, revamping the economy, providing security and fighting corruption. After 16 years of dashed hopes under successive Peoples Democratic […]

  • Economy : IMF forecast signposts tougher times

    By FELIX OLOYEDE  Experts have noted that the reduction in the International Monetary Fund’s (IMF) growth outlook for the Nigerian economy in 2018 presages a rise in the jobless rate as the economy head into a new year.  The IMF cut the country’s growth projections for this year from 2.1percent to 1.9 percent, arguing that […]

  • Tinubu launches early start to 2023 bid

    By OBINNA EZUGWU  Having, in his reckoning, secured the structure of the ruling All Progressive Congress with his long time ally, Comrade Adams Oshiomhole as chairman, and President Muhammadu Buhari now guaranteed to run for second term in office, and quite possibly, retain power, former Lagos governor, Senator Bola Ahmed Tinubu have begun strategic positioning […]

  • 2019: Peter Obi’s choice ruffle feathers

    By OBINNA EZUGWU  The emergence of former vice president, Alhaji Atiku Abubakar as presidential candidate of the People’s Democratic Party (PDP) dominated the political space last week. Many have continued to argue that the former vice president remained the only candidate with the requisite resources, reach and experience to defeat the incumbent President Muhammadu Buhari […]

  • APC primaries: Party crisis may consume Oshiomhole

    By OBINNA EZUGWU National Chairman of the All Progressives Congress, Comrade Adams Oshiomhole did apparently, make a kill with the recently concluded primary elections of the ruling party. Nomination and expression of interest forms were sold at exorbitant prices – ranging from N45million for presidency to N850,000 for state House of Assembly – and many […]



read more...