COVID-19: Bad Loan recovery challenges, fall in collateral values, others impact on banking sector —NDIC


By Kayode Tokede

The Nigeria Deposit Insurance Corporation (NDIC) has said bad Loan recovery challenges, fall in collateral values and increased impairments of both Financial and Non-Financial Assets (IFRS 9 and IAS 36) impacted on the banking sector amid COVID-19 pandemic.

The corporation added that delayed loan repayment due to moratoriums, restructuring of facilities and outright default, liquidity challenge, especially foreign exchange due to loan repayment defaults and  hike in cost of funds were part of the impact of the virus.

NDIC however, said it has reviewed its Financial and Technical Assistance framework and would be providing loans and assistance to specific banks that are in liquidity need due to the effects of the COVID-19 pandemic on the Nigerian economy.

Speaking at a workshop organised by NDIC for financial journalists in Kaduna State on Wednesday, the NDIC director, Insurance surveillance department, Galadima Gana, said the banking sector is still strong and well capitalised as average non-performing loans (NPLs) in the sector stood at six per cent slightly above the regulatory benchmark of five percent while average capital adequacy ratio (CAR) stood at 15 per cent.

Gana stressed further that the industry wide average liquidity stood at 36 per cent as at September 30, 2020 indicating that banks in the country are liquid, adding that, loan to deposit ratio stood at 60 per cent as against 65 per cent stipulated by the CBN. To this end, he said, there is need for banks to increase their lending to customers.

“The condition of the industry is generally satisfactory. However, the impact of the pandemic had also led to decline in credit facilities despite increase in deposits during the period March to June 2020. The regulatory and supervisory authorities have introduced measures to tackle the impact of the pandemic on the banking system with incentives such as interest rate reduction, moratorium, liquidity injection and regulatory forbearance on loan restructuring among others.

“Closer monitoring of banks and increased campaign on the safety of banks’ deposits through sustained public awareness and building of trust and confidence in the financial remain the key priorities of Regulators/ Supervisors.

“Also, the Corporation is reviewing the Framework for Financial and Technical Assistance in readiness for assisting banks that are faced with liquidity and solvency challenges during the pandemic and beyond,” Gana stated

In his welcome address, the managing director and chief executive of the NDIC, Alhaji Ibrahim Umaru, said regulators in the Nigerian financial sector are considering using financial technology solutions for business processes such as Risk Based Supervision (RBS), Monitoring Compliance, Premium Administration, Early Warning Signals, Stress Testing, Analysis of insured institutions’ performance.

Umaru, who noted that the NDIC and the Central Bank of Nigeria (CBN) as well as the Nigeria Communication Commission (NCC) has produced a policy guideline for the registration, licensing and supervision of Fintech in the country, said the sector can help revolutionise the financial industry and achieve the financial inclusion goal.

“The emergence of fintech has its own solitary effect to the extent that it provides wide ranging channels of financial intermediation through the enhanced used of technology, as you know very well you do not have to own a bank account and  you do not have to go to any bank to transact any business using your mobile phones and other devices.

“This is what fintech can do for us and it can revolutionize the entire landscale; the banks see it as competition in some kind of distraction, but at the same time, most smart banks have embraced them- some of them are having subsidiaries of fintech and some are in partnership with fintech so that we can broaden the scope of intermediation,” he pointed out.

The NDIC MD added that, “There are two main concerns for the corporation on Fintech: these are how to identify and insure non-bank deposit taking institutions licenced by CBN and other Agencies e.g. SEC.  Currently, there is an ongoing engagement with the relevant regulatory agencies on how to actualise that within the limits of legal provision.

“The second is how to tap into the potentials of Fintechs to effectively execute its business processes easily, speedily and reliably.  Consequently, we look forward to modernising our data collection and analysis through the use of Fintech solutions/tools (Regtech and SupTech) to handle the following business processes better than currently being done:  Risk Based Supervision (RBS), Monitoring Compliance, Premium Administration, Early Warning Signals, Stress Testing, Analysis of insured institutions’ performance, among others.”