Three Tier-2 banks report N81.8bn bad loans in 2020
By Kayode Tokede
Union Bank of Nigeria Plc, Stanbic IBTC Holdings Plc, Sterling bank Plc have reported N81.8billion bad loans or Non-Performing Loans (NPL) in 2020.
The NPL reported by these three Tier-2 banks dropped by nearly three per cent from N83.94 billion reported in 2019.
Union Bank of Nigeria closed 2020 with N29.45billion bad loans, a decline of 15.3 per cent from N34.76billion reported in 2019.
Stanbic IBTC in the year under review reported N26.49billion bad loans from N21.59billion reported in 2019 while Sterling Bank’s NPL dropped by 6.1 per cent to N25.9billion in 2020 from N27.6billion reported in 2019.
The National Bureau of Statistics (NBS) had disclosed that bad loans in the banking sector hit N1.23trillion in 2020 from N1.06trillion in 2019.
The N1.23trillion bad loan reported by bureau 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.
In terms of Central Bank of Nigeria five per cent NPL ratio threshold, our correspondent gathered that these banks report below prudential requirement.
According to our correspondent investigation, Sterling Bank has the lowest NPL ratio of the three banks.
Sterling Bank in 2020 reported NPL ratio of 1.9 per cent from 2.2 per cent, while Union Bank of Nigeria also reported drop in its NPL ratio to 4 per cent from 5.84 per cent and Stanbic IBTC Holdings reported 4 per cent NPL in 2020 from 3.9 per cent in 2019.
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 coronavirus 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 macroprudential 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.
