The economic situation in Nigeria has affected payment of banks’ loans, with the non-performing loans, otherwise known as bad loans, jumping from around N600 billion, last year, to N1.38 trillion in April, 2016, a document obtained from the Central Bank of Nigeria (CBN) by the Daily Trust has shown.
The bad loans ratio shot to 10.1 percent from around 3.6 percent last year, which was well above the regulatory threshold limit of 5 percent, but the CBN attributed the increase to the poor macroeconomic conditions of the country.
The document showed that the total sum of loans stood at N13.36tr in April 2016.
A non-performing loan (NPL) is the sum of borrowed money upon which the debtor has not made his or her scheduled payments for, at least, 90 days.
The apex bank, specifically, mentioned the low price of crude oil and supply constrains at the forex markets as key factors responsible for the poor loans performance.
Recently, the CBN said it had issued circulars advising the banks to retain more of their earnings in anticipation of the risks that the rising NPLs might pose to their balance sheets.
The banking industry asset quality is determined by its NPLs ratio.
It would be recalled that the economic meltdown in 2008 which affected many banks and threatened the existence of the country’s banking industry led to the establishment of the Assets Management Corporation of Nigeria (AMCON), in 2010.
The AMCON acquired non-performing loans, worth an estimated N3.3tr, and injected capital of N1.566tr into five banks and acquired three bridge banks for N765bn.
“The sudden rise in NPLs was attributed to the outcome of the Risk Assets Examination of DMBs conducted in December 2015,” the report said.
The report, given to the banks chief executives, last week, said that total deposits in the banks have declined by N1.03tr within the period under review.
It blamed the introduction of the Treasury Single Account (TSA) in the system for the decrease in deposits.
The TSA policy, which directed all Ministries Department and Agencies (MDAs) to move government funds to the CBN, commenced in September last year.
The document revealed that the industry’s total assets decreased by N158bn from N27.588tr while the gross credit declined from N13.403tr to N13.363tr within the period.
The report which reviewed development in the banking sector, said that the industry’s combined capital adequacy ratio has reduced to 16.5 percent from 17 percent, although still above the prudential minimum of 10 percent and 15 percent for banks with national and international authorisation respectively.
The report attributed the CAR deterioration within the period to decline in the total qualifying capital and increase in the total risk weighted assets.
It said that the unaudited profit before tax for the period ended April 2016 decreased from N222bn for the period ended April 2015 to N198bn in the period ended April 2016.
“Also the Return on Assets and Return on Equity were 2.17 percent and 16.17 percent in February 2016 compared with 2.42 percent and 19.39 percent in the corresponding period of 2015,” the report said.
The decline was driven largely by a decrease in both interest and non-interest income, which declined by 6 percent or N50bn and 54 percent of N259bn respectively.
On the liquidity ratio of the banks, the report showed that the industry operated far above the minimum requirement of 30 percent.
The ratio stood at 46.3 percent compared with 39.78 as at April 2015.