Five of the major banks in the country, also known as Tier-1 banks have posted whopping N683bn non-performing loans in the 2020 financial year, revealed.
According to the financial reports of the banks, released in April this year to the Nigerian Stock Exchange, the bad loans were linked to the downturn in the economy as a result of the COVID-19 pandemic and other factors.
The financial reports, which were analysed by our correspondent, revealed that some of the five Systemically Important Banks recorded an increase in their bad loans while others recorded a decrease during the year under review, compared to the previous year.
The five banks are Access Bank Plc, FBN Holdings Plc, Guaranty Trust Bank Plc, United Bank for Africa Plc, and Zenith Bank Plc.
They reported N161.2bn, N170.7bn, N111.46bn, N120.08bn and N125.24bn bad loans, respectively.
Further analysis showed that while FBN Holdings and GTBank reported NPL ratios that were above the prudential guideline of the Central Bank of Nigeria put at five per cent, Access Bank, Zenith Bank and UBA recorded NPLs that were within the regulatory threshold.
Meanwhile, eleven of the nation’s banks cumulatively recorded an 87 per cent increase in loan impairment charges in the 2020 financial year, compared to 2019.
A loan impairment charge is described as a deterioration in the realisable value of loans and advances or risk assets extended to banks’ customers. The occurrence of this event results in a reduction in the earnings of the affected bank and its shareholders.
In simple terms, impairment charges are charges banks make against their profit in order to reflect a fall in value or worse-than-expected performance of the loans or asset.
Specifically, findings showed that the 11 banks cumulatively incurred N342bn impairment charges during the 2020 financial year, compared to the N181.95bn recorded in 2019. This indicates a whopping 87 per cent increase in impairment charges.
The banks are Zenith Bank, Access Bank, GTBank, UBA, FBN Holdings, Ecobank Transnational Incorporated, Stanbic IBTC Holdings Plc, FCMB Holdings Plc, Sterling Bank Plc, Fidelity Bank Plc, and Jaiz Bank Plc.
The breakdown revealed that Zenith Bank incurred N39.5bn impairment charges in 2020, up by 64.5 per cent from the N24.03bn recorded in 2019.
Access Bank in 2020 reported N62.89bn impairment charges, a 211.5 per cent increase above the N20.2bn it reported in 2019.
In the year under review, GTBank recorded a jump of 299 per cent in impairment charges from N4.911bn in 2019 to N19.572bn in 2020.
Also, UBA reported impairment charges of N22.44bn last year, up by 37.4 per cent from the N16.336bn it reported in 2019.
However, FBN Holdings’ impairment charges dropped by 0.97 per cent to N50.6bn in 2020 from N51.09bn in 2019.
Sterling Bank reported N7.91bn impairment charges in 2020, a 35 per cent increase from the N5.84bn in 2019, while Ecobank posted impairment charges of N86.7bn, indicating an increase of 79 per cent from N48.32bn booked in 2019.
FCMB Group’s impairment charges stood at N22.31bn in 2020, indicating an increase of 62.3 per cent from the N13.75bn in 2019 while Fidelity Bank which had a write-back of N5.29bn in 2019, reported an impairment charge of N16.86bn in 2020.
Also, Stanbic IBTC Holdings and Jaiz Bank reported significant hikes in impairment charges in the year under review, reporting 508.76 per cent and 180.1 per cent increase to N9.94bn and N3.21bn in 2020 respectively.
Shareholders react
Meanwhile, shareholders of listed banks have reacted to the development.
The Chairman, Progressive Shareholders Association of Nigeria, Boniface Okezie, who linked the development to the tough business environment, said the challenging economic situation had impacted borrowers and their businesses.
He said, “Banks making higher provision for impairment charges means all is not well with our economy. It has become a problem in the banking sector as the economy generally is not working. The problem is that those who borrowed money to do business are not finding things easy.
“Nigeria is not exporting rather than importing, which is creating more problems. We have a lot of business problems in the system and it is affecting a lot of loans banks are lending to support the real sector. CBN can’t continue to over-stress the banks. The government’s policies are killing the banks.”
Okezie, however, expressed optimism that once the nation’s economy was revived, bank would be able to improve on shareholders’ return.
“All hope is not lost as we expect that the economy will perform better over the next five to 10 years by which time the banks are expected to be in a better position.”
In his response, the National Coordinator Emeritus, Independent Shareholders Association of Nigeria, Sunny Nwosu, advised the Federal Government to fulfil its promises to the banking sector by giving them palliatives as regards the COVID-19 lockdown.
He said, “If the government should intervene in the banking sector, it will reduce some of the debt they might have incurred during the period of COVID-19 lockdown.
“The period came with hazards, difficulties doing business, and the period also restricted capital flow to the SMEs sector.
“Last year was a difficult year for banks as we had lockdowns. Those businesses with advance money could not perform as they could have loved to. If the banks can manage such loan loss to that level in the 2020 financial year and they were able to pay dividends to the shareholders, then I think they have done very well.”
Meanwhile, analysts believe the nation’s banks incurred higher impairment charges against the backdrop of the Central Bank of Nigeria’s directive asking lenders to meet the 65 per cent Loan-to-Deposit ratio.
They also noted that the disruption in economic activities occasioned by the COVID-19 pandemic last year affected the banking sector which was expected to affect most risk assets.
