Banks Urged To De-risk Asset Portfolios Over Bad Loans
As the levels of non-performing loans remain high in the nation’s banking sector, deposit money banks have been urged to diversify their asset portfolios away from energy-related assets.
Banks’ NPLs, which rose to N2.245tn in the third quarter of 2018 from N1.939tn in the second quarter, stood at N1.792tn in the fourth quarter, according to data from the National Bureau of Statistics.
The Monetary Policy Committee of the Central Bank of Nigeria, during its meeting in January, noted that the gradual reduction in NPLs of the banks had further strengthened their balance sheets.
“The committee believes that as the government pays off contractor debt and other obligations, there will be a sizable reduction in the NPLs of the banking system,” it added in a communiqué with the personal statements of members.
The Deputy Governor, Financial System Stability, CBN, Mrs Aishah Ahmad, noted that data provided by bank members of staff showed that the industry capital adequacy ratio increased considerably from 10.23 per cent in December 2017 to 15.26 per cent in December 2018.
“The improvement in capital buffers is a positive development, which will be critical should a downward trend in crude oil prices manifest given banks’ portfolio concentrations in the oil and gas sector,” she said.
Credit from banks to the oil and gas sector stood at N3.55tn at the end of the fourth quarter of 2018, out of a total credit of N15.13tn to the private sector, according to the NBS.
According to Ahmad, notwithstanding the robust liquidity levels, credit to the private sector remains lower than required to support business investment and long-term growth.
She said, “Growth in lending portfolios is particularly important to diversify banks’ asset portfolios away from energy-related assets as earlier mentioned. Banks are strongly encouraged to commit fully to de-risking their portfolios in this aspect through new lending to SMEs and previously overlooked, but high-potential sectors such as services and creative industries.”
The Deputy Governor, Corporate Services, CBN, Mr Edward Adamu, said while monetary policy had to accommodate the need to sustain current improvements in banking industry’s financial soundness indicators, the DMBs would need to moderate their appetite for government securities and oil and gas assets, in order to gradually re-balance their asset portfolios.
Another member of the MPC, Prof Adeola Adenikinju, stressed the need to sustain the recent positive trend in financial system indicators.
“The monetary authority should not lower its guard and must continue to monitor the banks and implement policies to consolidate and further improve the FSI,” he said.
On his part, Dr Aliyu Sanusi said the moderation in NPLs, if sustained, would encourage banks to increase lending to the economy, which remained challenging last year.