Business
Banks maintain drop in NPL despite increased lending
BY EMEKA EJERE
Managers of Nigerian banks may have finally learned the lessons of prudence and transparency from their bitter past experiences with the challenge of non performing loans, NPLs, especially in troubled economic times, such as prevalent in the economy today. From the inception of liberalization of banking sector in the early 1990s, every economic crisis had taken a huge toll on banks leading to liquidations.
However, available statistics suggest that Nigerian banks have maintained stability in the management of their non-performing loans (NPLs) in the current crisis with most of them recording continuous decrease in that segment of their financials, even as their credit sides grew.
A non-performing loan (NPL) is a loan in which the borrower is in default and has not made any scheduled payments of principal or interest for over a certain period of time.
According to analysts, the NPL ratios in the banking sector remained stable in 2021, following the CBN’s forbearance for restructuring loan exposure to critical sectors.
During the last Monetary Policy Committee (MPC), a member of the committee deputy governor of Central Bank of Nigeria (CBN), Aisha Ahmad, said NPLs dropped to its lowest level in over a decade despite the increased lending by banks.
She noted that total credit had increased by N4.09tn between the end of December 2020 and December 2021 with significant growth in credit to manufacturing, general commerce, and oil and gas sectors.
She said, “Key industry aggregates also continued their year-on-year upward trajectory with total assets rising to N59.24tn in December 2021 from N50.99tn in December 2020, while total deposits rose to N38.42tn from N32.21tn over the same period.
“Total credit also increased by N4.09tn between end- December 2020 and end-December 2021 with significant growth in credit to manufacturing, general commerce, and oil & gas sectors.
“This impressive increase was achieved amidst continued decline in non-performing loans ratio from 5.10 per cent in November 2021 to 4.94 per cent in December 2021, 6 basis points below the regulatory benchmark for the first time in over a decade.”
Extract from the banks’ performances revealed that Guaranty Trust Holding Plc (GTCO) reported a drop in its NPL to 6.04 per cent in 2021 from 6.39per cent in 2020, while ETI Nigeria reported 16.30 NPL ratio in 2021 from 19.90 per cent in 2020.
GTCO in a presentation to investors/analysts explained, “The Group improved its asset quality with IFRS 9 Stage 3 loans closing at 6.04 per cent in 2021 from 6.39 per cent in 2020.
“The marginal increase in prudential NPLs from 6.86 per cent to 6.92 per cent was as a result of stress noted with certain exposures within the hospitality, individuals, clubs, co-operative societies and unions as the obligors within these sectors were severely impacted by Covid-19.
“Downstream sector benefitted from the N7.2bn write-off in FY 2021 as its NPLs improved to 8.6 per cent in 2021 from 11 per cent in 2020.
“IFRS 9 Stage 3 loans closed at N113.9bn as of FY 2021 increasing by 2.2 per cent from N111.5bn in 2020. Balance Sheet Impairment Allowance for Stage 3/Lifetime Credit Impaired exposures closed at N57.5bn representing 50.5 per cent coverage of loans in this classification.
“In aggregate terms (including Regulatory Risk Reserves of N87.6billion), the Group has adequate coverage of 150.4per cent for its Stage 3 names/NPLs, this position is consistent with the group’s plan to maintain 100 per cent coverage for its NPLs.”
United Bank for Africa Plc (UBA), Access Bank, and Zenith Bank, among other banks, reported NPL ratio below five per cent in the 2021 financial year.
UBA’s NPL dropped to 3.60 per cent from 4.70 per cent in 2020. Speaking on its NPL decline performance, UBA’s Group Chief Financial Official, Ugo Nwaghodoh said, “This testifies to the quality of UBA’s loan portfolio even as the bank remains relentless in its resolve to drive down the Cost-to-Income ratio, which stood at 63.0 per cent at the end of the year.”
Access Bank reported 4.00 per cent NPL ratio in 2021 from 4.30 per cent, while Zenith Bank reported 4.20 per cent NPL ratio in 2021 from 4.30 per cent in 2020. Stanbic IBTC Holdings reported 2.10 per cent NPL in 2021 from 4.00 per cent reported in 2020.
The Chief Executive, Stanbic IBTC, Dr. Demola Sogunle in a statement said the NPLs’ ratio moderated to 2.1 per cent, well within the acceptable limit of five per cent, as the total NPLs decreased in value by 23 per cent coupled with the responsible loan growth in line with the management conservative credit risk management practices.
Also, Wema Bank reported NPL ratio declined from 4.9 per cent in 2020 to 4.5 per cent in 2021, just as Union Bank of Nigeria’s NPL ratio moved from 4.00 per cent to 4.30per cent in 2021. FCMB group, however, closed 2021 with 4.10 per cent NPL ratio from 3.3 per cent in 2020.
Little wonder members of the MPC applauded the management’s efforts in ensuring the continued downward trend of NPLs ratio, which they said signifies improving conditions in the banking system.
The MPC members also noted the sustained resilience of the banking system, following the progressive improvement in the NPLs ratio from 5.10 per cent in November 2021 to 4.85 per cent in December 2021- a first in a long time.
“With the decline in the size of NPL, one would expect that the liquidity of the banks would be buoyant enough to grant more credits to grow the economy”, said Mr. Victor Opara, an economist.
For Opara, this is a good avenue for the banks to begin making more profits if the development can be sustained.
He speaks further: “Huge bad loan portfolio is the bane and nightmare of most banks.
“It is on record that most large banks that went under in the past was as a result of humongous toxic loans in their books, which largely squeezed their liquidity to meet depositors’ obligation as at when due”.
However, there is concern that this may not be the true reflection of bad loans in the country considering the recession and level economic crunch in the country.
An ex banker and lead partner, Patrick Modilim& Co, believes that the NPLs are declining because the 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 low economic activities, with many organisations, including the banks, operating below capacity, even in the area of credit provision.
In a telephone interview with Business Hallmark, Modilim said: “If they (the banks) were to follow prudential guidelines, there is no how the NPLs will be declining in a period when most individuals and organization do not have the capacity to live up to loan obligations.
“Even most of the banks are not lending. So, if you are not lending, how do you record bad loans in your loan books?
“Many banks believe it is better and safer to be sanctioned by CBN than give out loans that they are not sure of recovering.”
