Nigerian banks are seeing a surge in bad loans, a further signal of the slowdown in growth being experienced in the wider economy.
Impairment charges for credit losses taken by the five top tier banks, which control about 70 percent of industry loans increased by an average of 142 percent to N81.7 billion in the most recent third quarter.
FBN Holdings had the absolute largest provisioning for bad loans in the 9 months period to September 2015 with N46.6 billion, followed by Access Bank’s N11.5 billion, Zenith’s N9.7 billion, Guaranty Trust Bank’s N8.5 billion and UBA’s N5.3 billion.
“The imbalance in the banking sector is becoming clearly discernible with deterioration in asset quality due to the effect of falling oil price and exposure to oil and gas sector, which constitutes a reasonable component of banking sector assets,” Suleiman Barau, Deputy Governor, Operations Directorate at the Central Bank of Nigeria (CBN) said in his statement at the last policy meeting which was released last week.
The slowdown in the Nigerian economy hammered by a fall in oil prices and policy uncertainty, point to the risk of further non-payment’s by delinquent borrowers.
Nigeria’s economy, the biggest on the continent, relies on crude exports for around 70 percent of government revenues.
Real GDP expanded by 2.35 per cent in the second quarter of 2015, a significant decrease when compared with the 3.96 and 6.54 per cent recorded in the preceding quarter and corresponding period of 2014, respectively, according to data from the National Bureau of Statistics (NBS).
Key financial metrics reported by Nigerian banks are likely to continue to weaken in the closing months of 2015, according to Fitch Ratings Services in a recent report on the sector.
“Our expectations for loan growth are muted – a nominal 5% increase in 2015, which is low by Nigerian standards – due to the much deteriorated operating environment,” Fitch said in the report.
More stringent conditions from banks are slowing loan growth in the country, as lenders retrench from extending credit to all but the most blue chip firms.
The banks loans and advances to customers were largely muted with Guaranty Trust Bank and UBA reporting flat loan growth from 2014 levels, while FBN Holdings loans to customers fell to N1.9 trillion from N2.1 trillion in December 2014.
Analysts see the recent Central Bank cut in cash reserve requirements (CRR) for lenders as not moving the needle on loan growth as banks become more risk averse on rising impairments.
“A core reason attributed to the CRR ease was the MPC’s desire to see the banks invest more in critical sectors such as agriculture and mining, to help drive growth and reduce unemployment. We do not see this happening near term and think today’s decision is likely to put downward pressure on treasury yields as banks aggressively invest the released CRR in T-Bills and bonds,” Adesoji Solanke, a bank analyst at Renaissance Capital said.
PATRICK ATUANYA
