Banks At Risk Of Loan Default – CBN Deputy Gov
The Deputy Governor, Financial Systems Stability Directorate, Central Bank of Nigeria, Aishah Ahmad, has said banks face imminent risk of loan default from exposure to oil-related lending.
However, Ahmad, who is also a member of the Monetary Policy Committee, said the stress tests conducted by the industry regulator under low to moderate scenarios revealed that the financial system remained resilient in the face of tightened financial conditions.
Latest figures from the National Bureau of Statistics revealed that the non-performing loans in the oil and gas sector stood at N219.47bn as of the end of 2019.
In her personal statement to the MPC, Ahmad said the financial system remained vital in supporting the domestic economy through the crisis.
She said the loan to deposit ratio policy of the apex bank together with other complementary measures had been effective in driving growth in aggregate credit of N2.35tn between May 2019 and March 2020.
Ahmad said, “Notwithstanding, there are imminent risks to the banking sector arising from the spillover effects of the COVID-19 pandemic.
“There is potential default risk by obligors with oil-related repayment sources, or others unable to meet obligations due to the economic downturn, increased concentration of oil and gas exposures, deterioration in the foreign currency asset book, pressure on capital adequacy from currency depreciation, pressure on liquidity from reduced trading lines and heightened exposure to cyber threats.”
She stated that under severe stress scenarios, certain vulnerabilities in the system were evident such as reduction in earnings, deterioration in asset quality and decline in capital adequacy.
“This requires heightened vigilance by the bank to mitigate emerging risks and other complementary measures such as restructuring of credit lines for existing obligors and provision of liquidity backstops as and when required to safeguard the financial system,” she said.
Recently, the CBN debited banks N1.4tn for failing to meet the LDR target of 65 per cent set by the apex bank.
