BY EMEKA EJERE

Contrary to the expectation of most industry watchers, Nigerian banks’ non-performing loans as of the third quarter of 2020 dropped to N1.17 trillion, latest figures from the National Bureau of Statistics (NBS) have shown.

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 figures obtained from the NBS’ latest Selected Banking Sector Data Report, the figure stood at N1.21 trillion as of the second quarter of 2020.

Against the backdrop of the economic impact of Coronavirus (COVID-19) pandemic, the value of NPLs in Nigeria’s banking industry had risen marginally by 3.0 percent to N1.21 trillion in the second quarter of 2020 (Q2’20) from N1.18 trillion in the first quarter, 2020, Q1’20.

But compared to the situation in the first quarter, when the rate of growth in NPL was 11 percent against the previous quarter (Q4’19) the banks seem to have also done well in containing bad loans in Q2’20 amidst the COVID-19 pressures. The latest NPL figure indicates a decline of N42.4 billion in three months.

According to the governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, the banking industry regulator was proactive in its anticipation of the possible consequences on people and companies’ inability to earn revenue and pay workers’ salaries, as such would make it difficult for debtors to pay back their bank loans.

He said the Monetary Policy Committee (MPC) provided funding support for banks for businesses and households impacted by the pandemic, and also directed the banks to restructure the loans the people were unable to service under fresh terms.

According to the apex bank’s review of the performance of the banking industry, non-performing loans dropped from 9.4 percent as of June 2019 to 6.1 percent in August 2020.

In the new NBS report, in terms of credit to the private sector, the total value of credit allocated by the banks stood at N19.87 trillion as of Q3 2020.

“Oil and gas and manufacturing sectors got credit allocation of N3.74tn and N3.03tn to record the highest credit allocation as at the period under review,” the NBS said.

Lagos State accounted for the highest number of borrowers from banks while Yobe State was responsible for the least number.

“Lagos beneficiaries recorded the highest credit by geographical distribution with N15.13tn, accounting for 77.74 per cent of the total credit by geographical distribution, while Yobe State recorded the least with N19.38bn, accounting for 0.09 per cent in Q3 2020,” the NBS said.

According to the report, the General Commerce sector achieved the highest dip of 12.79% in the NPL, moving from N171.55 billion in Q2 2020 to N149.60 billion in Q3 2020, followed by the Oil and Gas sector that decreased to N238.26 billion in Q3 2020 from N268.79 billion in Q2 2020, a dip of 11.36%.

The highest surge in the NPL volume was contributed by the Transportation and Storage sector with 26.87%, with the NPL volume increasing to N46.99 billion in Q3 2020 from N37.04 billion in Q2 2020, followed by Power and Energy with 6.17%, moving from N30.81 billion in Q2 2020 to N32.71 billion in Q3 2020.

“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.” .

But a member of the Monetary Policy Committee of the CBN, Dr Kingsley Obiora, had disclosed that total credit to the economy rose to N18.6tn at the end of April 2020.

He said, “Financial system indicators were encouraging, with improvements to real sector lending, reflecting the bank’s Loan-to-Deposit Ratio policy.

“Total gross credit increased by N3.041tn from N15.57tn at end-May 2019 to N18.6tn at end-April 2020. The credit growth was largely driven by manufacturing, consumer credit, general commerce, information and communication, and agriculture.”

According to Obiora, the increase in credit is expected to bolster aggregate demand, investment, and job creation. He said the average retail lending rates of deposit money banks and interest rate spreads moderated in the review period.

“This development, I believe, will have a positive impact on financial intermediation and the effectiveness of monetary policy transmission channels,” he added.

Obiora, however, noted that there were risks and vulnerabilities in the short to medium term, which included persisting new cases of coronavirus disease and low oil prices, adding that although downside risks abound, his overall outlook for the economy was more optimistic than most analysts seemed to portray

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