With over N649b recorded as non-performing loans in the banking industry last year which is almost at the 5% regulatory threshold, stakeholders agree that this call for serious concern to prevent liquidity crisis in the sector, reports Ibrahim Apekhade Yusuf
The balance sheets of most of the deposit money banks (DMBs) are bleeding badly as a result of the humongous debt overhang in form of non-performing loans (NPLs).
A NPL is one which interest is overdue and full collection of principal is uncertain. It is either in default or close to being in default.
In last assessment of the balance sheets of most of these banks, the Central Bank of Nigeria observed that energy companies in the country are indebted to commercial banks to the tune of about N3.673 trillion.
This was in spite of several warnings by the CBN and other economic analysts, against the backdrop of declining fortune of crude oil in the international market.
Giving a breakdown of the figures, the CBN stated that in the industrial segment, oil and gas firms’ aggregate credit stood at N2.153 trillion as at March 2015, compared to N2.3 trillion in February 2015 and N2.047 trillion as at December 2014.
As to be expected by the time most of these banks closed their books, it became clear that their overexposure to the oil and gas sector after the shock s of the global oil prices was not only going to affect their bottom line substantially but would also have a rippled effect on their loan portfolio.
Banks with non-performing loans
Findings by The Nation revealed that First Bank of Nigeria net profit fell from N86 billion in 2014 to N15 billion in 2015, following rising impairments on Nigeria’s economy, owing to falling crude oil prices.
The bank’s non-performing loans ratio stood at 22percent at the end of March, compared with 3.8 percent a year earlier.
Confirming this development, Adesola Adeduntan, chief executive officer of First Bank while speaking with Bloomberg in Lagos recently said the bank’s number one priority is reducing the figure.
“The bank will do that by reducing the proportion of its lending to the oil and gas sector, currently at about 39 percent of total loans, and focusing more on blue-chip companies in other industries,” he said.
First Bank is not alone as far as NPLs is concerned. While speaking at the ‘Facts behind the figures’ held in Lagos recently, the Chief Financial Officer of Union Bank, Oyinkan Adewale disclosed that the bank’s non-performing loans ratio, which was 16.99 per cent at the end of 2015 and 6.90 per cent at the end of the first quarter of 2016.
“The coverage on those NPLs is almost 200 per cent. The NPL figure is a figure. It is a statistics. As the CFO of the bank, what is in a risk is how covered it is. The NPL is well covered. There is also 200 per cent for the loans,” she said.
Extracts of the bank’s financials presented at the event showed that NPL ratio grew from N9.9 billion in full year(FY) 2012 to N26.6 billion in first quarter (Q1) 2016.
Besides, the NPL ratio grew from 5.1 per cent in 2011 to 6.99 per cent in 2015. Adewale, however, noted the bank is also prudent with its loans as its loan to deposit ratio which grew by 41 per cent in 2014 was modulated to 13 per cent in 2016.
Investigation by The Nation revealed that Fidelity Bank’s total impairment charge in 2015 Financial Year (FY) was N5.7bn. The bank also wrote off N2.7b as bad loans in the 2015 financial year.
During its Annual General Meeting, Ladi Balogun, Group Managing Director/Chief Executive Officer, First City Monument Bank Limited said the bank is doing everything within its powers to mitigate the challenges.
“In spite of the adverse impact of the treasury single account (TSA), our balance sheet size remained fairly stable during the year as a result of our focus on retail banking. Our loan book declined 5% from N618 billion in 2014 to N593 billion in 2015,” he said.
Rage over rising NPLs
In the Financial Stability Report, released on Wednesday and signed by CBN Governor, Godwin Emefiele, showed that NPLs in the banking system rose sharply by 78 percent year-on-year to N649.63 billion in 2015.
At the 326th meeting of bankers’ committee held recently in Lagos, Director of banking Supervision, Mrs. Tokunbo Martins shed light on the incidence of NPLs in recent times.
Giving reasons for the NPLs, Martins attributed it to the economic downturn. “If people are not being paid their salaries and are thus unable to pay their loans, it is not unexpected. If corporate bodies are not doing well as they used to and are not able to pay their loans, it is not surprising that non-performing loans are rising. The average figure of five percent non-performing loan is not out of this world.”
Pressed further, she said: “On the other hand, it is not really that we are resting on our laurels, the bankers’ committee did discuss it. We spoke about such things as debt factoring. This is not something that has been done yet, but there were some discussions about it.”
Nigerian banks, which have a total loan portfolio of about N13trillion, have been reporting higher levels of NPLs in their 2015 results, citing weak economic conditions precipitated by the slump in oil prices.
Ratings agencies, including Fitch and Moody’s, have downgraded the credit ratings of several large Nigerian banks because of rising NPLs.
While commenting on the incidence of NPLs in banks, CBN spokesman, Mr. Isaac Okoroafor said loans are parts of business, adding that they should not be seen as a sign of weakness in the banking sector.
“Non-performing loans occur, when economic situation is not very good, especially now that oil price is plummeting. But we have it as a duty to ensure that the level will not threaten the existence of banks because of failing oil price,” he explained.
In the view of President, Association of Banks, Insurance and Financial Institution (ASBIFI), Sunday Salako the rising bank debt is a result of current economic meltdown affecting businesses.
“Many people will borrow to import certain things with the hope to sell, make gains and return bank’s money. But the thing is that they have imported and people are not buying; some have produced, and cannot sell,” he lamented.
Adducing reasons for the high non-performing loans, a source with a new generation bank who asked not to be named, said loans were given to some powerful Nigerians considered as “sacred cows” without tangible and verified collateral.
He recalled that some powerful Nigerians obtained loans with the mindset of not paying.
“They knew from day one that they wouldn’t pay because of internal connivance. These debtors had given part of the loan as gratification to some staff in order to circumvent the procedure. That is why many of them have no tangible collateral and there is no way you can force them to pay. On the long run, such loans are classified as bad debt. We have rescheduled and extended many of them. But the more you reschedule, the more you will be eating into your profit margin,” he said.
Continuing, he said: “Even the method of loan recovery, which the Central Bank introduced, is not working. It is impacting negatively on many of the banks. I mean the ‘name and shame’ method of loan recovery. It has brought many of the banks into litigation, as many of the personalities whose names we published had divested from the companies alongside which their names appeared. This is a major challenge.”
Way out
In the view of Tobe Nnadozie, Divisional Head, Innovation and Products, Heritage Bank Limited, banks need to adopt innovative measures in the face of the economic downturn.
“Certainly because of the prevailing economic challenges banks have to look at more creative ways to grow their bottom line. You know in the recent past, banks had to rely heavily on FX-related businesses to generate the highest deposits. However, what they can do now is to try to add value to customers beyond what they used to do.”
Specifically, he said banks need to give more value in terms of products and services to customers.
Pressed further, he said: “We’re helping the states to plug loopholes because we reckon that once we are able to help them plug these leakages they can save at least 40-60 per cent in IGR. In these day and time, banks, of course, have more fool-proof businesses. Most banks were involved in public sector business before now. But right now, there is no need to have over staff pursuing public sector. At Heritage Bank, rather than lay off people, what we have done is to reassign most of our staff to help drive innovations. And that is working.”
-THENATION
