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N1.7trn Non-performing Loans Choking Banks – Experts



CBN Governor, Godwin Emefiele

Concerns have been raised by stakeholders in the financial industry over the N1.67 trillion non-performing loans (NPLs) in the Nigerian banking industry. The average NPLs figure in the industry as at March this year was 12.2 per cent of total loans, LEADERSHIP gathered.

In separate interviews with LEADERSHIP, financial experts called for cautioned and canvassed the ways out of the ugly development.

The managing director of Highcap Securities Limited, Mr. David Adonri, said that the increasing banks’ NPL was worrisome, noting that the trend would affect banks’ dividend payout and stock market performance because the market rewards with good dividends.

According to him, “this is worrisome, the thing about bankers is that they lend aimlessly. Although the state of the economy can send those loans into becoming delinquent when the borrower does not intend to make it because when the economy is challenged, the tendency of loans becoming delinquent is huge.


Adonri continued: “The colossal volume is worrisome because everybody knows that the economy is not likely to perform well, based on what we are seeing, so why would you have to extend credit under such situation. Again banks have some public debts to invest which they are doing massively.

“This will affect the bottom-line and dividend payment because if the bottom-line reduces, the payout ratio will reduce eventually, and that will affect the entire market. It will definitely have a spiraling effect on the market,” he stated.

He therefore suggested the need for the banks to recapitalise to block the shortfalls ad to beef up their risk management framework, adding that they have to ensure that the credits they grant are those that are not likely to be delinquent considering the nature of the economy.

The managing director of GTI Securities, Amos Aladere, said that the implication of the rising banks’ NPLs is that it would impact on their capacity to declare huge profits.

He said that with the rising NPLs, the Central Bank of Nigeria (CBN) may issue a directive soon compelling banks to clean up their loan book.

Such directive, Aladere said would put pressure on banks to make more provisioning which would ultimately impact on their profitability because the loan book would gradually be written off.

Aladere added that this would also shrink the amount of loan that they would have extended to the real sector and the small and medium enterprises (SMEs), stressing that “their ability to give fresh loans will be constrained. They would buy more treasury bills and federal government’s bonds rather than giving out fresh loans and this would not grow the economy.


The general manager of Calyxt Securities Limited, Mr. Tunde Oyediran, said that this was already reflecting on some of the banking stocks’ prices, as investors were beginning to be apprehensive if the non-performing loans of banks were on the increase, the banks would definitely continue to make provisions for the loans.

Oyediran asserted that this would impact directly on the bottom-line and thereby reduce the dividends to be paid to the investors.

Also, former general secretary of Independent Shareholders’ Association of Nigeria (ISAN), Mr. Adebayo Adeleke, said that the banks were rather investing in treasury bills and bonds, while this might stabilise their balance sheets and enable them to pay impressive dividends to shareholders, it would not positively impact on the economy.

He stated that the key issue is that banks are licensed to be an intermediary to mobilise money from savers and give it to lenders to build the economy, noting that the increase of non-paying loans of the banks showed that they are yet to master the art of banking.

“It is their job to lend and it is their job to ensure that the lending does not go into the bad loan portfolio as much as possible,” Adeleke said.

The total amount of non-performing loans of Nigerian banks which was N1.79 trillion at the end of 2018 financial year dropped to N1.67 trillion as at March 2019, according to figures released by the National Bureau of Statistics (NBS).

The data showed that the gross loans by the end of 2018 stood at N15.35 trillion. By the end of 2017, the statistics revealed that the gross loans in the banking sector were N15.96 trillion of which N2.36 trillion were non-performing loans.

However, some analyst are of the opinion that the new lending policy will see a significant boost for the economy as small businesses which are unable to access finance will now be able to get funding to grow.

The managing director and chief executive of Cowry Assets Management Limited, Johnson Chukwu, told LEADERSHIP that the policy would force banks to develop capacity to lend more to sectors which they had neglected.


According to him, banks would be cautious in ensuring that their NPLS do not get to alarming levels as they strive to meet the 60 per cent loan- to-deposit ratio (LDR) set by the CBN.

Chukwu said: “In the first place, the banks have to loosen their risk criteria and also expand their target market in order to meet the LDR of 60 per cent. Lowering the risk criteria means that they will have to accommodate lower quality credit which may in the long-term fail.

“It is not out of place to speculate that the level of NPLs will increase as they give credit to SMEs that are more risk-prone. It is expected that the level of NPLs will increase and we know that when the NPLs increase it affects the banks’ liquidity and also slow down their risk appetite. I hope the banks will develop the relevant competences to manage credit to those new sectors.

“I don’t think the banks will get to that point where the level of their NPLs will rise significantly. The banks will be very cautious. I expect them to develop the right competences to manage risk in their new areas of lending as they find their target market, they will also need to build competences. The banks are not going to just throw their purse open to all comers.

“We might have an uptick in NPLs but I don’t think the banks are going to allow it get to that level. But when there is an uptick in NPLs the banks are going to start de-risking their balance sheet which means they will start calling back loans and they will slow down their lending but in the first instance.

“I expect the banks to better manage the new sectors particularly the SMEs and consumer credit lending for mortgages, the banks will quickly build up capacity to understand these areas and manage them,” he said.


On his part, a senior lecturer, Department of Economics, Pan-Atlantic University, Dr. Bongo Adi, disagreed with the notion that the LDR will considerably spike up NPLs in the banking industry. Adi noted that “whoever is saying that is an enemy of this country. The reason the economy is not growing and why people are suffering and poverty is so high is because the ease of finance is so difficult.

“It is difficult to raise finance for any business. You go around and find that people have business ideas, the limiting factor that they have everywhere from the farthest part of the north to the remotest part of the south is the lack of finance for business. It is not as if there is no demand or that the market conditions are not good, or people don’t have the ideas.

“The ideas are there, the market conditions are there and the demand is there, but people cannot find the finance to fund their businesses. The problem is that most of these banks are looking for very big businesses that they can fund.

“Over the years, what they have done is to fund trade and put money in oil and gas where they imagine that the risks are so low. This is a right market for SMEs, small businesses require small capital to make huge profit margin but because of the perceived risks in the system, banks are not funding these small businesses.

“Also, we have banks that are not really innovative. If you go into banks in Nigeria you will see that the products that they have are almost similar targeting only the big businesses. Only a few banks are financing MSMEs,” Adi said.