Banking sector NPLs drops, recovers N738.15bn hanging loans

The percentage of non-performing Loans in the banking sector has dropped to 6.67 per cent at the end of third quarter of 2019, latest statistics from the National Bureau of Statistics (NBS) has revealed.

According to the latest report released by the National Bureau of Statistics (NBS) for the third quarter (Q3) 2019, NPL in the oil and gas sector dropped from N1.002 trillion in third quarter of  2018 to N264 billion in third quarter of 2019. This suggests that in one year, banks recovered N738.15 billion NPL in the sector. 

The latest NBS report shows that there was a major drop in NPL across sectors in the last one year, as Nigerian banks recovered loans from 16 sectors.

Although the Central Bank recently disclosed that the ratio of NPL to total loans had declined further to 6.56 per cent at the end of October 2019 from 6.67 per cent in September 2019.

Analysis of NPL data shows in the last one year, NPL dropped by N1.103 trillion, from N2.24 trillion in the third quarter of 2018 to N1.108 trillion in third quarter of 2019.

The latest drop means NPL hit the lowest figure since the first quarter of 2016 when it stood at N1.29 trillion.

A close look at the banking sector data shows that gross loans rose to N15.22 trillion from N13.90 trillion in Q3. This implies that the CBN’s policy move to improve loans in the economy had largely affected the figure.

Despite the increase in gross loans, NPL dropped and this is good for the economy.

 In Nigeria, NPLs represent one of the most serious challenges that affect liquidity challenge in the Nigerian banking sector. Bank loans are regarded as risk assets because the monies advanced as loans by the banks belong to depositors. The risk arises in the event of massive defaults and makes it difficult for depositors’ monies to be available on demand.

However, the Central Bank, through the Asset Management Corporation of Nigeria, has initiated policy action to down NPL in Nigeria. Recall that the details of the new AMCON law empower the corporation to access bank accounts, computer system components, electronic or mechanical devices of any debtor with a view to establishing the location of funds belonging to the debtor.

The oil and gas sectors had been the biggest concern until the recent huge drop which is traceable to CBN policy.

As NPL drops, this means more funds to improve liquidity in key sectors of the economy. The Monetary Policy Communique in its recent communique stated that despite the drop in NPL, the figure remains above the prudential benchmark of 5.0 per cent, and the CBN has been urged to sustain its current efforts, which have created this exorable prudential regime.

Other sectors that witnessed reduction in NPL include Transportation and Storage (N32.27 billion); General (N26.42 billion); Scientific and Technical Activities (N5.19 billion); Mining and Quarrying (N2.69 billion); Art, Entertainment and Recreation (N2.36 billion); Human Health and Social Work Activities (N1 billion); Administrative and Support Services (N620 million); Capital Market (N600 million), and Public Utilities (450 million).

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