Bank Loans Rise By N2.35trn
Despite an increase in bank credit to the private sector, the non-performing loans stood at 6.54 per cent as of February, 1.54 per cent above the prudential benchmark set by the Central Bank of Nigeria.
Credit to the private sector rose by N2.35tn from June 2019 to February this year after the Central Bank of Nigeria mandated the Deposit Money Banks to raise their Loan to Deposit Ratio as part of its regulatory measures to improve lending to the economy.
To ramp up growth in the Nigerian economy through investment in the real sector, the CBN directed all the DMBs to maintain a minimum of 60 per cent LDR by September 30, 2019. This was later raised to 65 per cent.
After the recent Monetary Policy Committee meeting, the CBN stated that the Bankers’ Committee noted with satisfaction the growth in aggregate credit by N2.35tn since the inception of the LDR policy, reflecting the potency of the policy and urged the management of the bank to sustain the current momentum of improved flow of credit to the private sector in Nigeria.
Part of the communiqué read, “The MPC noted the continued resilience of the banking system, evidenced by the further moderation in the ratio of the NPLs from 6.59 per cent in January to 6.54 per cent in February 2020.
“Although the ratio remained above the prudential benchmark of five per cent, the committee expressed confidence in the bank’s regulatory regime and commitment to maintaining stability in the banking system.”
The committee emphasised the need for coordination with the fiscal authorities, to strengthen access to credit to some critical sectors of the economy, including the weak and vulnerable population, particularly those in the informal sector through the setting up of a special fund, as well as support for the enforcement of credit recovery.
According to the MPC, the sectoral distribution of credit between end of May 2019 and end of February 2020 showed that credit to the manufacturing was N533.06bn; general retail and consumer loans was N380.71bn; general commerce was N229.87bn; while agriculture, forestry and fishing was N163.04bn.
It added that Information and Communications stood at N163.69bn; finance and insurance was N131.20bn; construction amounted to N112.25bn; and transportation and storage amounted to N45.42bn, among others.
The CBN had disclosed in its fourth quarter 2019 report that at N22.96tn, banks’ credit to the domestic economy, at end-November 2019, showed an increase of 3.8 per cent, compared with the level at end-September 2019.
The development reflected, largely, the 4.7 per cent and 3.6 per cent rise in claims on the Federal Government and the private sector, respectively, in the review period.
Total specified liquid assets of the commercial banks were N14.66tn at end-November 2019, representing 60.6 per cent of the total current liabilities.
At that level, the liquidity ratio was 2.9 percentage points and 43.3 percentage points above the level at end-September 2019 and the stipulated minimum ratio of 30.0 per cent, respectively.
The fourth quarter report revealed that the loans to deposit ratio, at 62.9 per cent, was 0.7 percentage point higher than the level at end-September 2019, but 17.1 percentage points lower than the prescribed maximum of 80 per cent.
The Governor, Central Bank of Nigeria, Godwin Emefiele, said credit conditions in the banks had improved and banks were now able to recover customers’ debts from other lenders.
He said, “Credit conditions in the banking system have improved, supported by our new policy measures announced in June 2019, which require banks to maintain a minimum 65 per cent loan to deposit ratio.
“In addition, banks are now able to recover delinquent loans from customers’ accounts in other banks.”
As a result, he said, the gross credit increased by N1.16tn between May and October 2019, which had helped to place the banks in a better position to support a stronger economic recovery.
He said the country’s financial system was in a much stronger position, following the crisis as capital buffers and liquidity in the banking system had continued to improve.
The Managing Director/Chief Executive, Asset Management Corporation of Nigeria, Mr Ahmed Kuru, said AMCON would continue to do whatever it could within the law to recover the huge debts in the banking sector.
He said that AMCON would continue to work with its other stakeholders to sustain the high tempo of recoveries.
The CBN recently stated that it had reduced interest rates from nine to five per cent on its existing intervention programmes over the next one year, and created a N50bn fund to support households and the Small and Medium Enterprises affected by COVID-19 and introduced credit support for the healthcare sector.
It stated that it also introduced regulatory forbearance to consider temporary and time-limited restructuring of loan terms and tenors to households and businesses affected by COVID-19, and strengthened the LDR policy.