Banks’ Non-performing Loans Hit N1.32tn, Blame Economic Challenges

Banks' Non-performing Loans Hit N1.32tn, Blame Economic Challenges

The banking sector based on statistics recorded a total of N1.32tn in non-performing loans as of the end of April 2023.

According to figures obtained by The PUNCH from the CBN, this figure represented 4.3 per cent of the total credit in the banking sector which stood at N30.64tn.

The loans in the sector had maintained a steady increase, following the Loan to Deposit Ratio order of the CBN that mandated banks to increase their loans’ ratio to the public.

According to the figures, the banks’ gross credit was N29.72tn as of the end of December 2022, with non-performing loans of N1.2tn or 4.2 per cent of the total credit

However, challenges in the economy, which was further worsened by naira crunch crisis in the first quarter of the year, a challenge that crippled many businesses, created repayment challenges for many businesses.

A Monetary Policy Committee member, Aliyu Sanusi, said in his statement released by the CBN that in April 2023, “The non-performing loans ratio was 4.3 per cent, and was below the regulatory maximum of five. Furthermore, Liquidity Ratio stood at 45.3 per cent, above the regulatory minimum of 30 per cent. These suggest that the banking system continues to remain safe, sound and resilient.

“The industry’s total assets and gross credit to the economy have sustained an upward trend, the former grew year-on-year by N16.65tn or 25.88 per cent to N80.97tn in April 2023. The upward trend in total credit to the economy had continued since 2019 following the bank’s Loan to Deposit Ratio policy, standing at N30.64tn as of April 2023.”

The SMEs in the country fell into naira crunch challenge after many of them survived the COVID-19 pandemic. The CBN had restructured its intervention loans to the SMEs, after extending five per cent interest rate, introduced to cushion the effect of COVID-19 on the economy by one year.

Agusto & Co said in its report titled, ‘Redesign gone wrong? – Costly cashless’, that, the disruption to transactions, trade (domestic & foreign), productivity and all-round economic activity was likely to be significant enough to trigger a contraction in GDP in Q1, 2023, and possibly a loss of livelihoods for many.

It stated, “Many cash-dependent businesses are being pushed to the brink. For example, cocoa farmers are currently unable to pay their labourers and transporters, jeopardising production and exports.

“The cash constraint is also likely to compel consumers to prioritise spending on necessities, leaving many businesses, particularly MSMEs, with decreased sales and heightened credit risks.”

The CBN, during the last quarter of 2022, announced plans to redesign the naira notes within 90 days, which led to huge challenges for all sectors, with the country’s growth slowing down in the first quarter of 2023.

Banks’ Non-performing Loans Hit N1.32tn, Blame Economic Challenges

Figures obtained from the National Bureau of Statistics’s first quarter report on Nigeria’s Gross Domestic Product showed that, Nigeria’s GDP grew by 2.31 per cent (year-on-year) in real terms in the first quarter of 2023.

It added that, “This growth rate declined from 3.11 per cent recorded in the first quarter of 2022, and 3.52 per cent in the fourth quarter of 2022. The reduction in growth is attributed to the adverse effects of the cash crunch experienced during the quarter.”

The National President, Association of Small Business Owners of Nigeria, Mr Femi Agbesola, noted that the SMEs were grappling with challenges, hindering them from meeting their loan obligations.

According to him, about 7.8 million SMEs under the association shut down in the last two years.

Speaking on some of the challenges facing the SMEs, he said, “The first is the high inflation rate which has eroded the disposable capital of the consumers, and the consumers don’t have funds in their hands to buy more.

“This reduces the sales and profit of SMEs and makes it difficult to meet their obligations including loans.”

He worried that foreign exchange rate was galloping daily and affecting the price of goods and commodities.

Agbesola said, “For the past three months now, the CBN has jacked up the MPR rate and today, it is at its highest. With the harsh economic condition of the country, it is difficult for anybody to pay loans at that high interest rate; that is why some of them are also failing.

“Another challenge is the increase in pump price of fuel due to subsidy removal as companies now spend more in their operations.”

An MPC member, Kingsley Obiora, noted that the non-performing loan in the sector was reduced due to write-offs, restructuring of facilities, Global Standing Instruction, and sound credit risk management.

He said, “Consequently, total gross credit increased by N4.54tn, representing an increase of 19.71 per cent between the end of April 2022 and the end of April 2023, from N26.10tn to N30.64tn, due to the increase in the industry funding base, the CBN’s directive on Loan to Deposit Ratio, and business strategy and competition.

“The credit growth was largely recorded in key sectors of the economy, including oil and gas, manufacturing, general commerce, and government.”

The CBN in 2020, released the GSI guideline to reduce non-performing loans in the banking sector and monitor consistent loan defaulters among others.

According to the CBN, the GSI allowed the banks to recover the outstanding principal and interest upon default from any account maintained by the debtor across all financial institutions in Nigeria.