Marginal deterioration in banks NPLS raises concerns

There was marginal increase in the Nigerian banking sector NonPerforming Loans (NPLS) to 6.3 percent in February 2021 from 6.1 percent in December 2020, and this has raised concerns among stakeholders.

Specifically, members of the Monetary Policy Committee (MPC) meeting, in their personal statement at the last meeting, called for increased surveillance by the regulator.

“There is an observed weakness in bank performance indicators especially the rise in non-performing loans ratio from 6.1 percent in December 2020 to 6.3 percent in February 2021 as well as some decline in bank profitability within the same period. While these marginal declines in bank performance indicators poses no threat to bank stability, it rather calls for more regulatory vigilance,” Robert Asogwa, member of the MPC said.

Banking Sector credit however gathered pace in February 2021 with a total of 95,583 new credits, thus expanding the total banking sector credit by over 4.0 percent compared to the level in December 2020. This momentum is expected to continue in 2021, supported by strong liquidity in the domestic money market and the rise in lending to micro, small and medium enterprise (MSME) sector. Of the total banking sector credit to the economy, net credit to Central Government continued to grow in February resulting in a notable acceleration of broad money.

However the Nigeria’s Deposit Money Banks (DMBS) credit to the private sector rose by 2.56 percent to N20.37 trillion in the fourth quarter (Q4) of 2020, the year that was bedevilled by the impact of Covid-19 pandemic.

The latest data from National Bureau of Statistics (NBS) showed that total value of credit allocated by the bank stood at N20.37 trillion as of Q4 2020. Oil & Gas and Manufacturing sectors got credit allocation of N3.93 trillion and N3.19 trillion to record the highest credit allocation as at the period under review.

Ade Shonubi, deputy governor of the CBN said, the Nigerian banking system continued to show signs of resilience, even as it remained the major channel for sustaining the economy during the crisis and beyond. Industry asset, deposit and credit grew further at the end of February 2021, noted.

The average capital adequacy ratio improved to 15.2 per cent, against 15.0 per cent regulatory threshold, while industry liquidity ratio, at 44.5 per cent in February 2021, remained above regulatory threshold of 30.0 per cent.

He said measures of profitability were positive, though the NPL ratio deteriorated marginally to 6.3 per cent, above the regulatory minimum of 5.0 per cent.

Growth in credit to the Government, domestic claims and credit to private sector reflected impact of various measures by the Central Bank to promote flow of credit to drive economic activities. Money market rates were moderated by ample banking system liquidity, buoyed mainly by inflow from maturing bills.

In her personal statement, Aisha Ahmad, deputy governor, said maintaining the positive trajectory of credit growth, especially in critical sectors (manufacturing, retail & SMES) will be instrumental to accelerating output growth in the short to medium term. Whilst the financial system has been crucial in propelling the economy out of recession, the Bank must remain vigilant and proactively anticipate and mitigate macroeconomic risks which may negatively impact the industry.

This is particularly important as the Central Bank reviews the status of regulatory forbearance granted to restructure credit exposures in sectors adversely impacted by COVID-19. It is imperative that the banking sector builds adequate capital buffers to preserve resilience and enable it continuously deliver on its intermediation role in the economy on a sustainable basis.