Banks’ NPL improves on stable macro economy

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The levels of non-performing loans in the banking industry is said to be moderating as the performance of deposit money banks continue to improve.

 

 

Although the current NPL figures were not revealed, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) who said this at the last Monetary Policy Committee (MPC) was optimistic that this moderation would continue.

The percentage non-performing loans reflect the health of the banking system. This implies that a higher percent of such loans means that banks have difficulty collecting interest and principal on their credits, which may lead to fewer profits for the banks and, possibly, bank closures.

Members of the MPC who participated in the May meeting noted some improvements in the banking system as the deteriorations in financial soundness indicators have been halted, and in some cases reversed.

Uche Uwaleke, associate professor and head, banking and finance department Nasarawa State University told BusinessDay early this year that monetary policy easing on the back of receding inflation rate will equally improve banking sector liquidity and will go a long way in reducing the over 15 percent non-performing loans in the industry.

Nigeria’s (inflation) year-on-year slowed marginally to 11.23 percent in June from 11.61 percent the previous month, but still remains well above the 6-9 percent preferred band.

The  Risk Assets examination of 20 Deposit Money Banks (DMBs) as at December 31, 2016, revealed that of the total industry loans portfolio of N15,597.32 billion, the sum of N3,105.94 billion (or 19.91%) was non performing. The 19.91 percent NPL ratio was a 79.04 percent increase over the average industry ratio of 11.12 percent recorded as at December 31, 2015, according to the Nigeria Deposit Insurance Corporation (NDIC).

The banking industry NPL ratio which stood at 10.13 percent as at December 2016 rose to 15.18 percent by September 2017.

Banks are heavily skilled to high risk sector – upstream oil and gas; however the risk appears to be reducing following the sustained increases in the price of crude oil and production.

“We are cautiously optimistic on the overall NPL outlook for the sector”, Renaissance Capital analysts said in their May report.

In his personal statement at the May MPC meeting, Adamu, Edward Lamtek, noted that industry return on asset (ROA) and return on earnings (ROE) rose quite significantly to 21.57 and 2.14 per cent, respectively, in April, from 11.78 and 1.28 in February 2018. Likewise, the non-performing loans (NPLs) ratio moderated slightly in April.

“These positive developments are broadly connected to the improvement in the macroeconomic conditions including stable exchange rate and declining inflation. Interestingly, banking system stability is required for proper financial intermediation (including credit flow to the real sector) which is needed to support recovery in output”, Lamtek said.

SOURCE: BUSINESSDAY

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