N1.23trn bad loans bane of Nigerian economy — Analysts
…as Oil & Gas, Construction, Information Communication, General Commerce contribute N754.1bn
…Govt must create conducive business environment to curb raising bad loans — LCCI
By Kayode Tokede and Ogaga Ariemu
Analysts have blamed the woes of Nigerian economy on bad loans in the banking sector. During the period of review, non-Performing Loans (NPLs) or bad loans in the banking sector increased to N1.23trillion in 2020 from N1.06trillion in 2019.
The N1.23trillion bad loans reported by National Bureau of Statistics (NBS) on Sunday is the highest since third quarter of 2019 when N1.45triillion was reported.
The bureau in its “Selected Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels and Staff Strength” report disclosed that gross loans by banks was N20.48trillion as at fourth quarter of 2020.
Nigerian NewsDirect’s investigation revealed that NPL ratio of 6.02 per cent reported by NBS as at fourth quarter of 2020 is marginal different from 6.01 per cent reported by the Central Bank of Nigeria (CBN) at end-December 2020.
NPL ratio measures the rate of bank loans that are either going bad because they are not being serviced adequately or have gone bad completely.
The apex bank acceptable NPL ratio is five per cent, however, this ratio has been breached since the fall in oil prices began in the 4th quarter of 2019 and the Covid-19 pandemic broke in 2020.
The Monetary Policy Committee (MPC) had noted that the ratio remained above the prudential benchmark of five per cent and urged the Bank to sustain its regulatory measures to bring it below the prudential benchmark.
The CBN governor, Godwin Emefiele in its communiqué at the first MPC meeting of 2021 said, “The Committee commended the Bank for maintaining a sound regulatory surveillance over the banking system by ensuring a reasonably low level of NPLs, even with the aggressive credit expansion programme during this crisis period.
“Though, NPLs remained slightly above the prudential benchmark, members noted that the banking system remained stable, strong and resilient.
“Given the success recorded under the LDR policy, it thus urged the Bank to sustain its risk surveillance approach and ensure the continued soundness of the banking system.”
He added that, “With the impact of the corona virus on particular sectors of the economy, it was not entirely unexpected, nevertheless it is imperative that we continue to work to ensure that banks comply with our macro prudential framework in order to prevent further deteriorations in their loan portfolios.”
The NPL ratio is one of the most important benchmarks for measuring the health of the banking sector. At above six per cent, it indicates most commercial banks are carrying more underperforming loans than expected mostly because the private sector is not servicing the loans.
Nigerian NewsDirect gathered that Oil & gas, Construction, Information communication and general commerce contributed N754.1billion bad loans in 2020.
The breakdown revealed that Bad loans in the Oil & gas sector top the chart in 2020, gaining N95.91billion or 43.70 per cent to N315.38billion in 2020 from N219.47billion in 2019.
According to NBS report, bad loans in the construction sector added N84.19 billion or 97.44per cent to N170.59 billion in 2020 from N86.40billion in 2019, while bad loans in Information Communication hit N112.11billion in 2020 from N81.10 billion reported by NBS in 2019.
In addition, the bureau disclosed N156.02 bad loans in General Commerce last year from N 145.26 billion reported in prior year.
Analysts expressed that the weak capital flow amid the pandemic hike bad loans in the banking sector, calling on stakeholders to improve on ease of doing businesses as means to drive productivity.
Speaking with Nigerian NewsDirect, the former President, Chartered Institute of Bankers Of Nigeria (CIBN), Professor Segun Ajibola stated that weak cash flow and loan restructuring directive by CBN hiked bad loans in the banking sector.
According to him, “Business environment last year was challenging because of COVID-19, forcing CBN to direct banks to restructure. The problem has to do with cash flow as businesses, factories were closed. The lockdown affected cash flow and loan can only be serviced through cash flow.
“The weak cash flow was behind the creative idea from CBN that banks should restructure their loans.”
Speaking also, the Director-General, Lagos Chamber of Commerce & Industry, Mr. Muda Yusuf called on banks to strengthen their risk management system to curb rising bad loans in the sector.
“The hike in bad loans is a reflection of risk profile of investment. Some assets classes are riskier than others. It will help to minimum losses. However, it is difficult to predict some of these risks as witnessed with COVID-19 pandemic. There are so many uncertainty surrounding our economy”
He also called on federal government to create enabling environment for investors to reduce the risk of investment. A Senior Lecturer, Lagos Business School, Bongo Adi also blamed economy challenges to hike in bad loans reported by banks last year.
He maintained that Nigeria’s unproductive economy aided bad loans reported by the NBS, stressing that investment was coming into the country.
According to him, “People were not paying back to banks because investment they made did not yield returns which become bad loans.”
However, the Association of Telecommunications Companies of Nigeria (ATCON), has assured that there is no cause for alarm as bad in the Information and Communication will be tackled.
The President of ATCON, Engr. Ikechukwu Nnamani on Sunday, noted that situation is typical of the ICT sector due its nature,as the sector has long time gestation period before revenue generation is achieved.
He stated that “A typical ICT infrastructure project has a gestation period that can only last a minimum of three years in terms of infrastructure, in terms of how to build that infrastructure. If the loan is not well structured, you will see a situation where, if they don’t give enough moratorium, they will start counting on the loans even the infrastructure is still being built. So, that needs to be taken into consideration.
“Speaking generally from what I know in the sector, telecom and ICT project has a long gestation period before you start generating revenues.
“It also not uncommon to see long-term loan invokes. The bank ought to record them as Non-performing, but that doesn’t mean the loan has gone bad, we need to understand this.
“Secondly, once a project takes off and the assumptions behind NBS performance is accurate, it doesn’t take long to pay. It sometimes could see a loan that was long performing for several years, suddenly get paid within a short period of time because now the project is high, Users are using it and revenue is being generated.
“That is one of the areas we’re trying to relate with the banking sector so that we can properly execute them on the nature of telecom and ICT infrastructure.
“I am sure the Etisalat loan that was taken over under the new 9mobile with the restructuring that CBN and NCC facilitated to prevent it from going under is included in this also. All that should be taken care of in the near future,” he said.
He hinted that the high cost of foreign exchange is a major hindrance to loan repayment in the ICT sector.
He disclosed that while telecom operators mostly import infrastructure in USSD, they generate profits in Naira, thereby increasing the burden of loan repayment in the Sector.
