Don't Miss

Banks get January deadline to reduce non-performing loans

By BusinessNews Staff on December 9, 2014

Rising non-performing loans in the books of Deposit Money Banks have forced the Central Bank of Nigeria to issue a January 2015 deadline to lenders, asking them to reduce their toxic assets or face severe penalties, findings by our correspondent have shown.

Sources at the CBN and banks, who confirmed the development to our correspondent on Sunday, said the directive was handed down to the banks a couple of months ago.

The sources, who spoke under condition of anonymity because they were not authorised to speak on the matter, said the central bank might be forced to take serious measures against the affected banks if they failed comply after the expiration of the deadline.

A central bank source said, “We went into their (banks) books and found out that some of them have crossed the five per cent threshold set by the CBN as the ratio of non-performing loans to total risk assets.

“Some of the banks have reached eight per cent while a few others have crossed 10 per cent. We have given them till January to bring everything back to below five per cent. But some of them are still below the five per cent threshold.”

The source also explained the development was caused by banks’ ‘large exposure’ to the oil and gas and power sectors.

Huge loans, according to him, have been advanced by the banks to players in the oil and gas sector, and some of the companies have yet to commence the rapayment.

“Some of them have some loans in the oil and gas sector that have yet to be repaid; this has made their NPLs to rise significantly, crossing the five per cent threshold. But they have promised the CBN that everything will be normalised before the January deadline,”

The CBN’s Director, Corporate Communications Department, Mr. Ibrahim Mu’azu, was not readily available for comments. He did not respond to calls made to his telephone line. A text message sent was not also replied.

Huge NPLs in the nation’s banks had led to the crisis in the sector in 2009. The situation made the CBN to sack the management of some banks and injected hundreds of billions of naira in order to save them from imminent collapse.

Following this, the CBN set five per cent threshold as the ratio of the NPLs to total risk assets for every bank operating in the country.

In recent times, however, the NPLs have been rising in banks, according to industry analysts

Global raging agency, Fitch, had in October said Nigerian banks’ growth would moderate over the next 18 months due to the CBN’s actions aimed at protecting the economy and the banking system.

According to the rating agency, the AMCON levy and network expansion strategies have made the banks to experience earnings pressure and high operating costs.

The report added that “banks are now seeing some asset quality deterioration with rising absolute non-performing loans, reflecting fast loan growth since 2011.”

It added, “Most banks’ NPL ratios remain below the five per cent prescribed by the CBN but Fitch views this as unsustainable in the long-run. Very high loan concentrations by borrower and sector expose banks, particularly the smaller banks, to significant event risk.”

The global rating agency also said it expected the banks’ capitalisation to come under pressure due to the Basel II implementation in 2014 and the proposed new regulatory capital computation rules.

[Punch]

headline