The issue of banks’ asset quality has overly been discussed but it is expedient that investors and shareholders know the true position of Non-Performing Loans (NPLs) as at the first quarter of 2017.
When oil price was above $100, the economy was relatively stable and the attendant positive prognosis that was based on rising middle class and a huge population made it so easy for banks to lend to businesses, especially the oil companies.
However, the sudden drop in oil prices in mid-2014 combined with dearth of dollars sent a predawn chill down the spine of operators in the financial sector as major part of their assets in their portfolio became impaired.
Apart from First Bank Holdings Plc, Nigeria’s largest lender by assets, Tier 1 lenders were able to surmount the headwinds as NPLs are below the 5 percent regulatory threshold.
For the first three months through March 2017, FBN Holdings’ NPLs stood at 26 percent, one the highest in the industry. Gross NPLs increased by 3 percent to N492.60 billion as against N478.80 billion as at December 2015; 34.70 percent of these loans are to the oil and gas sector.
In the Tier 2 category, Stanbic IBTC Holdings Plc has the highest exposure to the oil and gas as NPLs rose to 11.01 per cent in March 2017 as against 5.07 per cent as at March 2016.
Diamond Bank’s NPLs grew 43 percent, while gross NPLs moved by 82.33 percent to N109.70 billion in March 2017 from N60.0 billion as at March 2016.
Some Tier 2 lenders are intensifying their risk management strategy as evidenced in a reduction on NPLs.
For instance, First City Monument Bank (FCMB) Plc’s NPLs of 4.30 percent is lower than 4.80 recorded the previous year.
Fidelity Bank’s NPLs improved to 6.10 per cent in the first quarter of 2017 from about 6.60 per cent recorded as at December 2016 thanks to a 7.1 per cent drop in absolute NPL figures and the growth in the loan book.
The decline in absolute NPL volumes was primarily from General Commerce, Transport, Retail and Real Estate sector which accounted for over 85 per cent of the decline.
The Nigerian lender’s coverage ratio improved to 90.9 per cent in their first quarter of the year compared to 83.5 per cent reported as at December 2016.
It is estimated that bankers in Africa’s most populous nation lent a total of $10 billion to local oil and gas companies to buy assets from Royal Dutch Shell, Eni and Total.
However, there is light at the end of the tunnel for operators in the industry as relative peace in the Niger Delta region has resulted in increased oil production.
An economic recovery is expected to pave the way for delinquent debtors to honour obligation to banks.
The lifting of Force Majeure on Trans Forcados Pipeline (TFP) by Royal Shell should have a positive impact on the cash flows of oil companies that transport crude along that route.
This is also a propitious sign as these firms can now settle money owed to banks.
BALA AUGIE
