The banking sector report released by the National Bureau of Statistics (NBS) revealed that the Nigerian banking industry witnessed a 14 per cent increase in Non-Performing Loans (NPLs) in the first half of 2020, ending a two-year downward trend in NPLs since Q3 2018.
The report indicates that NPLs surged to N1.212 trillion at the end of June 2020, from N1.059 trillion recorded in December 2019, a clear indication that NPLs in Nigerian banks rose by N152.4 billion or 14.38 per cent in six months.
A breakdown of the figures as at H1 2020 indicates that Oil and Gas sector accounted for the largest share of NPLs in Nigerian banks, recording a whopping 22.2 percent increase in NPLs from N219.91 billion recorded at the end of Q4 2019 to N268.79 billion in Q2, 2020.
Construction sector followed the lead with 93.4 percent increase from N86.79 billion in Q2, 2019 to N167.86 billion in Q2, 2020.
Commerce and Trade followed suit with a record of 17.5 percent f=rise from N146 billion to N171,55 billion by the end of Q2, 2020.
- The story is not all gloomy, after all. The positives are the agriculture, transportation, power and energy, education sectors which all recorded a decline in NPLs.
A senior financial analyst in one of the banks in Lagos who preferred to be anonymous attributed the rise in NPLs to defaults in loan repayments by customers due to the outbreak of the Covid-19 pandemic that forced most businesses to shut down their operations. The fall in the price of crude oil also eroded the quality of assets of virtually all the banks.
The forecast is that there is no indication that this will abate in the last quarter of the year, particularly for vulnerable sectors like Oil and Gas, Manufacturing which is usually affected by external shocks. There is a flash of hope, nonetheless as the Central Bank of Nigeria (CBN) has approved about 33 per cent of loans owned Nigerian banks to be restructured.
The apex bank does not appear alarmed though, given the tone of its report on the level of NPLs in the banking sector.
“The Committee noted the decrease in NPLs ratio to 6.4 percent at end-June 2020 from 9.4 percent in the corresponding period of 2019, on account of increased recoveries, write-offs and disposals. The Committee expressed confidence in the stability of the banking system and urged the Bank to monitor the compliance of DMBs to its prudential and regulatory measures to sustain the soundness and safety of the banking industry.” CBN