The ratio of non-performing loans (NPLs) to total gross loans in Nigeria’s banking sector declined to more than a three-year low of 9.30 percent as at June 2019. This is on the back of the Central Bank of Nigeria’s policy that requires effective management of credit risk.
The ratio which is a measure of the health of the banking system dropped to its lowest point in the second quarter of 2019 since the 5.32 percent last reported in the fourth quarter of 2015, data released by the National Bureau of Statistics (NBS) on Sunday show.
Analysis of the data revealed that the banks’ NPL ratio was down 2.43 percentage points from 11.73 percent in the second quarter of 2016 to 9.30 percent in the corresponding quarter of 2019.
A non-performing loan is a loan in which the borrower hasn’t made any scheduled payments of principal or interest for some time. In banking, commercial loans are considered non-performing if the borrower is 90 days past due.
The CBN in August 2019 set new limits for banks and other financial institutions on the NPL to reflect in their books.
“The NPL limits are required to help banks manage their credit risk effectively. To this end, all banks are to ensure that the level of the NPLs in relation to gross loans does not exceed five per cent,” the apex bank said.
The apex bank’s regulation is contained in the Prudential Guidelines to Microfinance Banks, Deposit Money Banks, Mortgage Refinance Companies, Finance Companies, and Development Finance Companies,
The total non-performing loans in the banking sector stood at N1.44 trillion at the end of the second quarter of 2019, a 25.39 percent decline when compared to the N1.93 trillion recorded the year before.
In the same period under review, the gross loans stood at N15.48 trillion, up 1.19 percent from the N14.29 trillion in the corresponding quarter of 2016.
However, on-year-on-year comparison, the gross loan declined by 1.7 percent from N15.58 trillion in the second quarter of 2018 to N15.48 in the six months ended June 2019.
A further analysis of the data by the NBS revealed that as at second quarter of this year, the oil & gas sector accounted for the highest volume of the non-performing loans. Of the total NPLs of N1.44 trillion reported in the review quarter, N577.49 billion or 40 percent was from the oil & gas sector. This was followed by general commerce which accounted for N164.79 billion of the entire NPLs.
ENDURANCE OKAFOR
