Why CBN authorised banks to write off 25% of $1.9bn bad-debts

 More facts have emerged on why the CBN directed banks in Nigeria to cancel 25 per cent of the total $1.9bn (N600 bn) non performing loans (NPL) in the system as bad debt.

The directive was sequel to pressure from the banks after CBN’s last monetary policy committee (MPC) meeting, on the reason that one of the ways of returning the bad economy on track is to reduce banks’ liabilities in the system.

The central bank has also told banks to set aside extra capital buffers against their dollar loans immediately in the wake of a 40 percent fall in the value of the naira.

Non-performing loans are expected to jump to 12.5 per cent of total loans this year, up from the central bank’s target of 5 per cent at the end of last year, as banks suffer a hangover from an oil industry credit boom that ended abruptly in 2015, according to Augusto & Co, Nigeria’s main rating agency.

It was learnt that the request was granted based on understanding with the CBN will re-revisit its earlier stance that NPL will be used to assess banks liquidity and buoyancy.

Read also: CBN sets limit of dollar sale to BDCs at $30, 000

Pressure has been building on the country’s banks, whose loan books have been hit by Nigeria’s shrinking economy, plunging currency and foreign exchange shortages following the slump in oil prices.

Another reason advanced by the commercial banks in their request was that the central bank should amend its rule requiring them to keep non-performing loans on their books for one year even after they have been fully provided for.

The NPL of some banks have been in the increase in the past three years, in this category are: Diamond Bank bad-debts portfolio rising from 7.6 per cent to 8.9 per cent by the first half of the year, FCMB is to restructure 25 per cent of oil and gas loans after it restructured 50 per cent of the loans last year.

Asset Management Corporation of Nigeria (AMCON), which was set up in 2010 to absorb bad loans during the country’s financial crisis, has said it has stopped buying non-performing loans (Nils) and is now focused on recoveries.

AMCON, Nigeria’s “bad bank”, has said any decision to allow it to acquire NPLs would be up to the government and central bank.

Earlier this month, the central bank shored up mid-tier lender Skye Bank with a loan and replaced its management after its capital fell below levels required by regulators.

By Emma Eke

 

 

 

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