The Central Bank of Nigeria (CBN) stated that commercial banks’ non-performing loans (NPLs) levels in Nigeria fell below 5per cent to 4.94per cent at the end of December 2021, for the first time in about a decade.
This was disclosed in the personal statements of the members of the Monetary Policy Committee (MPC).
An NPL ratio is used to measure the level of the bank’s credit risk and the quality of outstanding loans. A high ratio means the bank bears a greater risk of loss if it fails to recover the owed amounts, while a low ratio means that the outstanding loans pose a low risk to the bank.
Following the gradual improvement in the Non-Performing Loans (NPLs) ratio from 5.10per cent in November 2021 to 4.94per cent in December 2021–a first in a long time — the MPC remarked on the banking system’s continued resilience.
The Committee also noted that the liquidity ratio remained well above its prudential limit at 41.3per cent, though Capital Adequacy Ratio (CAR) declined marginally to 14.53per cent in December 2021 from 14.90per cent in the previous month. The Committee thus urged the Bank to sustain its firm regulatory surveillance.
According to CBN Deputy Governor, Aisha Ahmad, non-performing loans dropped to their lowest level in over a decade despite the increased lending by banks.
She said, “Total credit also increased by N4.09 trillion between end – December 2020 and end-December 2021 with significant growth in credit to manufacturing, General commerce and Oil and Gas sectors.
“This impressive increase was achieved amidst continued decline in non-performing loans ratio from 5.10per cent in November 2021 to 4.94per cent in December 2021 (6 basis points below the regulatory benchmark) for the first time in over a decade.
“Furthermore, results of stress tests showed resilience of banks’ solvency and liquidity ratios in response to potential severe macroeconomic shocks.
“However, the Bank must remain vigilant to proactively manage probable macro risks to the financial system such as lingering spillover effects of the pandemic, winding down of forbearance measures, and myriad risks to financial stability including exchange rate, operational and cyber security risks.”
Another member of the MPC, Akinniju Festus noted that Capital Adequacy Ratio despite its slight decline from 15.1per cent in December 2020 to 14.53per cent in December 2021, is still above the prudential requirement of 10per cent.
“Liquidity ratio at 41.33per cent was also higher than 30per cent prudential requirement. Both Returns on Assets and Returns on Equity fell in December 2021 relative to December 2020. Operating costs to income rose from 68.2per cent in December 2020 to 73.1per cent in December 2021,” he said.