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Non-performing Loans in Nigeria’s Banking System gallops to 11.7%

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Indications have emerged that Non-performing loans (NPL) in Nigeria’s banking system soared to more than double the limit set by the regulator as the industry struggles with an economic downturn.

The ratio of non-performing loans to total credit rose to 11.7 percent at the end of June from 5.3 percent at the end of 2015.

The Central Bank of Nigeria (CBN) which mandates banks to keep the measure below 5 percent, said in a report on its website yesterday that “Credit risk is expected to trend higher into the second half of 2016 owing to increased loan impairments resulting from the depreciation of the naira,” the bank said, adding that the inability of debtors to service foreign currency-denominated loans and bank exposures to the oil and gas sector were also factors.

Currently banks are battling severe shortages of foreign exchange, which an almost 40 percent devaluation of the naira against the dollar in June has failed to rectify. Gross domestic product is set to shrink 1.7 percent this year, according to the International Monetary Fund, which would be the first full-year recession since 1991.

The weight of NPLis becoming unbearable for some banks (names with held).

Already, First Bank  has been one of the worst hit. Its NPL ratio increased to 23 percent at the end of June from 4.1 percent a year earlier as capital levels have also decreased.

The sector’s capital adequacy ratio fell to 14.7 percent in June from 16.1 percent in December. For big banks, which the regulator classifies as having more 1 trillion naira ($3.2 billion) of assets, that fell to 15.65 percent, still above the requirement of 15 percent.


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