8 banks write off N279.6bn bad loans

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…set aside N305bn for loan loss                                      

… 2 banks record increase in bad loans

As customers were unable to pay back loans/Securities due to economic challenges, a total of eight Nigerian commercial banks write off N279.6 billion loans in 2017, investigation by Nigerian NewsDirect has revealed.

The eight banks in prior year write off N147.28 billion.

A bank can only write off a loan balance when its credit department determines that the loan is uncollectable and had been declared delinquent and subsequently classified as lost.

This determination is made after considering information such as the continuous deterioration in the customer’s financial position, such that the customer can no longer pay the obligation, or that proceeds from the collateral will not be sufficient to pay back the entire exposure.

The board of such approval is required for such write-off.

Further findings by Nigerian NewsDirect revealed that for insider-related loan write off (loans by the bank to its own officers and directors), Central Bank of Nigeria (CBN) approval is required.

The considered banks are Access Bank Plc, Guaranty Trust Bank Plc (GTBank) and FBN Holdings. Others are Union Bank of Nigeria Plc, Wema Bank Plc, Diamond Bank Plc, Fidelity Bank Plc and Sterling Bank Plc.

Of the above commercial banks, FBN Holdings, followed by Diamond Bank reported significant increase in loan write offs in 2017 amid increased Non-Performing Loans (NPLs) and Impairment charge for credit losses.

Specifically, FBN Holdings reported N199 billion loan write off in 2017 from N61.45 billion reported in 2016 while Diamond Bank reported 6.6 per cent increase in loans write off to N50.2 billion from N47 billion in 2016.

According to Nigerian NewsDirect findings, FBN Holdings’ continued to witness loan write off on its term loans and Overdrafts loans and advances to customers.

The breakdown of FBN Holdings loan write off comprises N199 billion loan write off on specific impairment in 2017 as against N53.2 billion Loan write off on specific impairment in 2016.

The Holdings also reported N241 million loan write off on collective impairment in 2017 from N8.29 billion reported in 2016.

Furthermore, FBN Holdings’s NPL dropped by 11 per cent to N520 billion in 2017 from N584.2 billion in 2016.

For Diamond Bank, the group reported N50 billion loan write off in 2017 from N47 billion in 2016 while its NPL hits N119.98 billion in 2016 from N100.4 billion in 2016.

Since 2011, Diamond Bank has now taken total loan provisions in excess of N290 billion. That’s an incredible accretion of capital from one of Nigeria’s oldest banks.

Diamond Bank reported that its loan to Geometric Power was impaired by about N45.7 billion. The bank granted Geometrics a N49.3 billion loan in the third and fourth quarters of 2017, contributing to the N56.8 billion loss recorded due to impairment.

Meanwhile, Sterling Bank’s loan write off dropped by 98 per cent to N286 million from N17.99 billion in 2016 as Wema Bank’s reported N521 million loan write off in 2017 from N274.3 million in 2016.

Accordingly, Access Bank loan write off on loans and advances to customers dropped significantly by 57.8 per cent to N5.7 billion from N13.6 billion while that of Fidelity Bank     closed 2017 at N9.4 billion from N3.39 billion in 2016.

In addition, Union Bank reported N13.3 loan write off in 2017 from N21.23 billion while GTBank’s loan write off stood at      N750 million in 2017 as against N222.4 million in 2016.

Analysts explained to Nigerian NewsDirect during the weekend that mismanagement and economic challenges abet increase loan write off in some commercial banks.

Research Analyst at Pan Africa Capitals Plc, the Investment Banking arm of Pan African Capital Group, Mr. Moses Ojo, explained to Nigerian NewsDirect during the weekend that such loans are classified into three in which write off loans is one of them.

He stated that banks are responding to the CBN’s prudential guideline that stipulates loan write offs.

He noted that some  banks are cleaning their books in a move to  boost profitability and pay dividend to shareholders.

He added that loan write offs thus impinged banks’ profitability.

“When banks are writing off loan, it is actually from their income. The income that should have gone into profit is what banks are writing off.Also, the level of banks’ reserve will reduce when a bank writes off loans,” he explained.

Reacting also, the former General Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr. Adebayo Adeleke, explained to our correspondent, that write off is a secondary level after loan loss provision.

He said, “Once banks cannot recover loan when it is not performing within a specific period of time, the prudential guideline says that they must make provision for it.

“Making provision for it simply means that it is no longer treated as if that money is available to them. But if it’s provisioning, that means they should still go after it, and see if they can make recovery.

“If they are able to make recovery in what they have already made up, your mind that it’s gone, that money will just come in as if someone is just dashing them money. So it will just go straight to their profit and loss.

“If they now discover that after the provision, they are unable to recover it, that is when they will write it off. Writing it off doesn’t have a secondary implication on shareholders, since the provisioning has already taken the primary implication of it.”

He emphasized that the recovered money would have effect on the shareholders if part of the money provided for was recovered.

“The recovered money will probably increase banks’ level of profitability. But the year they made the loan loss impairment decreases banks’ profitability, so if they are able to recover it, it would have now come in to increase the profitability of that when the money is recovered,” he said.

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