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Banks increase provisioning for bad loans in first half results

By on July 28, 2015

Banks have increased their provisioning for bad loans for the first half (H1) ended June 30, 2015 as a proactive measure given the headwinds in the banking sector and economy generally.
THISDAY checks revealed that all the banks, which have released their corporate results for the H1 so far, increased their impairment charges for bad loans, a development financial analysts said is principle in prudent loan management.
Since  the major banking reform embarked upon by the Central Bank of Nigeria(CBN) in 2009/2010 in the banking industry, which led to improved risk management strategies by banks, it was expected that impairment charges that have also negatively affected the profitability of banks, would reduce. However, the operating environment continues to through up challenges that have made banks to raise their level of provisioning for bad loans.
Analysis of the results of banks so far released by banks in H1. For instance, Stanbic IBTC Holdings  Plc increased its loans provisioning by 449 per cent to N7.8 billion, from N1.4 billion in the corresponding period of 2014.Fidelity Bank Plc impairment charges rose by 269 per cent from N838 million to N3.1 billion. FBN Holdings Plc, witnessed an increase of 248 per cent in impairment charges, which rose from N6.6 billion to N23 billion in 2015. Similarly,Union Bank of Nigeria Plc recorded a growth in impairment charges, though marginally. The bank made a provision of N2.97 billion for bad loans in 2015, compared with N2.78 billion in 2014.
Commenting on the development, an economist and financial analyst, Dr. Abiodun Adedipe told THISDAY that the provisioning is in line with state of the Nigerian economy.
“The Nigerian economy was confirmed recessed during H1, three consecutive quarterly drop in gross domestic product(GDP) growth, some  loans will naturally become delinquent and provisioned accordingly. In addition, provisions may be required in anticipation as a principle in prudent loan management,” Adedipe said.
Also speaking to THISDAY on the development, another economist and financial analyst, Mr. Bismarck Rewane, said it is the consequences of a fall in the price of crude oil, adjustment in the currency value and fiscal gaps created by state governments’ failing in their financial obligations.
“If I am a bank and I have a couple of customers and some of them are doing contracts for government and have not been paid. I have made loans to civil servants who have not been paid salaries. I have made loans to manufacturers who import raw materials and the value of the currency has changed and they are finding if difficult to  bring  in the same quantity of  raw materials they need, all of these added, affect the quality of loan books,” the Chief Executive Officer of Financial Derivatives Limited, said.

 

[ThisDay]