By Ayobami Adedinni
The current challenges of dwindling global oil price has significantly weakened the asset quality of some banks in the country, with rising Non Performing Loans (NPL) and imminent fall in naira value putting banks in a precarious position in a distressed economy in 2016.
According to Nigerian NewsDirect investigation, majority of these commercial Banks continuously invested to the detriment of profit and skyrocket NPL ratio. Specifically, Unity Bank Plc had the highest credit risk in 2016 reporting N369 billion as against N241 billion in 2015 an increase of 20 per cent.
The struggling commercial bank had a total of 97 per cent total NPL in 2016 compared to 77 per cent in 2015. Union Bank’s bad loans moved from N25.9 billion in 2015 to N37 billion in 2016, an increase of 35 per cent.
Also, Zenith Bank Plc had an increase from N44.9 billion in 2015 to N71.3 billion in 2016 translating to 2.18 per cent and 3.02 per cent in 2015 and 2016 respectively.
However, Stanbic IBTC recorded N24 billion NPL in 2016 as against N32.2 billion in previous year which translated to 6.4 per cent in2016 as against 8.5 per cent in 2015, a drop of 2.1 per cent.
According to a CBN report, NPLs in the banking system rose sharply by 78 percent year-on-year to N649.63 billion in 2015. Ratings agencies, including Fitch and Moody’s, have downgraded the credit ratings of several large Nigerian banks because of rising NPLs.
Speaking with our correspondent on the development, The Chief Executive Officer, Enterprise Stockbrokers, Mr. Rotimi Fakayejo said the exchange rate fluctuation and the low oil price was a key factor that contributed to the high volume of bad loans among Nigerian banks.
He said, “I think the exchange rate fluctuation actually contributed to it and more so most of the loans are Oil and Gas related,” he said.
According to him, another reason could be increase in Director related loans despite the monitoring by CBN and the Nigerian Deposit Insurance Corporation (NDIC).
In his words, “It is amazing that despite the effective monitoring by the CBN and NDIC this kind of thing is still coming to bear. More so with the fact that it is not even all that have been disclosed. A lot of them are still being managed whereby such NPL ought to have gone bad but they have a way of making it look good.
“But I don’t really see the same thing happening in 2017 and by the time we begin to see their second quarter, it is only First Bank among all the banks that has made more provision like they did last year in spite of the write off that they did but other banks are beginning to face reality and things are getting better,” he said.
The NDIC had earlier this year revealed that bank directors were responsible for 40 per cent of the N1.85 trillion non-performing loans or bad loans in banks. The Corporation also revealed that directors were responsible for about 40 percent of N139.45 billion bad loans in microfinance banks and mortgage banks.
Managing Director/Chief Executive, (NDIC), Alhaji Umaru Ibrahim disclosed this while defending the corporation’s 2017 budget before the House Committee on Insurance and Actuarial Matters as part of its oversight function.
He said: “As at December 2016, the 25 Deposit Money Banks (DMBs) had total loans portfolio of N18.53 trillion out of which N1.85 trillion or 10 per cent were NPLs where N740 billion or 40 per cent constituted Insider/Directors related loans. This was far above regulatory threshold of 5 per cent for the DMBs,” he said.
Industry analysts explained that the rise in credit to the oil and gas industry is an understanding of the investment process. This investment according to them is necessary at a period of low oil price which will definitely yield higher returns for the banks as the prices of crude oil rises in the international market.
“Regardless of shareholders’ complaint about the interest of banks in the oil and gas, increasing investment by Nigerian banks will also provide opportunity for indigenous firms to raise fund needed to compete with their foreign counterparts,” they assured.