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Banks sinking in N3.7tn bad debts

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The balance sheets of most of the deposit money banks (DMBs) are bleeding badly as a result of the huge debts portfolio in form of non-performing loans (NPLs) valued at over N649 billion as at July 2015.

The sum which was grossed over a period last year is almost at the 5% regulatory threshold, a development stakeholders argue, call for serious concern.

A Non-performing loan is one which interest is overdue and full collection of principal is uncertain. It is either in default or close to being in default.

Ripples had reported earlier that a stress test conducted by the Central Bank of Nigeria (CBN) indicated that two new generation banks are technically bankrupt, as their Capital Adequacy Ratios (CARs) fell below regulatory capital requirement of 10 per cent.

In the last assessment of the balance sheets of most of these banks, the Central Bank of Nigeria (CBN) observed that energy companies in the country are indebted to commercial banks to the tune of about N3.673 trillion.

This was in spite of several warnings by the CBN and other economic analysts, against the backdrop of declining fortune of crude oil in the international market.

While giving a breakdown of the figures, the CBN stated that in the industrial segment, oil and gas firms’ aggregate credit stood at N2.153 trillion as at March 2015, compared to N2.3 trillion in February 2015 and N2.047 trillion as at December 2014.

Expectedly, by the time most of these banks closed their books, it became clear that their overexposure to the oil and gas sector after the shocks of the global oil prices was not only going to affect their bottom line substantially, but would also have a rippled effect on their loan portfolio.

Read also: Two banks may be distressed, CBN test shows

Investigation by Ripples Nigeria revealed that First Bank of Nigeria net profit fell from N86 billion in 2014 to N15 billion in 2015, following rising impairments on Nigeria’s economy, owing to falling crude oil prices.

The bank’s non-performing loans ratio stood at 22percent at the end of March, compared with 3.8 percent a year earlier.

First Bank is not alone as far as NPLs are concerned. While speaking at the ‘Facts behind the figures’ held in Lagos recently, the Chief Financial Officer of Union Bank, Oyinkan Adewale disclosed that the bank’s non-performing loans ratio, was 16.99 per cent at the end of 2015 and 6.90 per cent at the end of the first quarter of 2016.

Further investigation by Ripples Nigeria revealed that Fidelity Bank’s total impairment charge in 2015 Financial Year (FY) was N5.7bn. The bank also wrote off N2.7b as bad loans in the 2015 financial year.

The Financial Stability Report, released last Wednesday and signed by CBN Governor, Godwin Emefiele, showed that NPLs in the banking system rose sharply by 78 percent year-on-year to N649.63 billion in 2015.

At the 326th meeting of bankers’ committee held recently in Lagos, Director of banking Supervision, Mrs. Tokunbo Martins giving reasons for the NPLs, attributed it to the economic downturn.

While commenting on the incidence of NPLs in banks, CBN spokesman, Mr. Isaac Okoroafor said loans are parts of business, adding that they should not be seen as a sign of weakness in the banking sector.

In the view of President, Association of Banks, Insurance and Financial Institution (ASBIFI), Sunday Salako the rising bank debt is a result of current economic meltdown affecting businesses.

Speaking with Ripples, Chief Timothy Adesiyan, one of the arrowheads of the shareholders’ group admitted that NPLs could sometimes lead to bad debts but was quick to add that it was not a misnomer to have NPLs in the first place because it was inevitable in the ordinary cause of business.

 

 

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