The latest Banking Industry report by Agusto & Co, has shown that Nigerian banks are yet to recover from the economic recession due largely to the impact of foreign exchange rate crises.
The report indicated that analysis of non-performing loans otherwise referred to as stage three loan in the country’s banking sector has risen to N1.5trillion due to International Financial Reporting Standard (IFRS) at the end of 2018.
The figure, compared with N1.3 trillion or 9.5 per cent reported as non-performing loan growth reported in similar period of 2017 shows that the rise in stage three loan in the sector amounted to 15 percent.
“In 2017 non-performing loans was N1.3 trillion, this accounted for 9.5 per cent of the loan book. The 15 per cent increase in stage three loans in 2018 compared to 2017 is evidence of the deterioration of the loan assets recognised by Nigerian banks, which is largely due to the fact that most companies are yet to recover from the economic recession particularly the impact of foreign exchange rate crises,” the report said.
According to the Agusto & Co, report, stage three loans are loans with objective evidence of impairment at the reporting date. In the previous period, Stage three loans can be assumed to be “individually impaired or non-performing loans”.
Expatiating further on the industry’s performance, the report said, “The Industry’s Stage two loans and advances as of December 2018 were N2.9 trillion, this represents 22 per cent of gross loans. In prior periods, Stage two loans can be assumed to be “past due but not impaired” and it amounted to N793 billion in 2017. Although Stage two loans do not have objective evidence of credit loss, these loans should be monitored closely to ensure that it does not deteriorate to Stage three.
“If after 90 days, there is no longer evidence of a significant increase in credit risk, such loans could be transferred back to stage one. Comforting, however, the banking Industry has provided for 87.35 per cent of the industry’s non-performing loans.’’
However, the report also revealed that the Banking industry’s total loans declined by 2.8 per cent, saying this is largely due to the repayment by some customers and the cautious approach by banks towards extending further loans due to weak macro-economic climate.
“In the near term, Agusto & Co expect a reduction in NPL ratio but this will not be significant. We also expect that there will be no significant growth in the Industry’s loan book as banks will continue to be risk-averse in the face of harsh operating terrain,” it stated.