Diamond Bank violates CBN’s 5% NPL requirement
Diamond Bank Plc has violated the Central Bank of Nigeria (CBN) directive on Non-Performing Loan (NPL) ratio of five per cent, as its NPL stood at 6.9 per cent at the end of 2015 financial year.
The bank in 2014 had reported NPL of 5.2 per cent, an indication that shows that management of Diamond Bank has not been prudent enough in managing its risk.
With NPL above five per cent, Diamond Bank becomes one of the eight banks to violate CBN five per cent regulatory threshold, business247 can report.
Other listed banks on the Nigerian Stock Exchange (NSE) that have violated CBN requirement are First Bank of Nigeria Holdings Plc, Ecobank and Union Bank of Nigeria plc.
Also, the Diamond Bank’s group in 2015 reported a total-non performing loans and advances of N56.68 billion from N42.4 billion recorded in 2014.
Chief Executive Officer of Diamond Bank, Mr. Uzoma Dozie, in a statement said: “2015 was undoubtedly a challenging year for us owing to a mixture of external factors not limited to regulatory headwinds and a difficult macroeconomic environment.
“Whilst this led to additional impairment charges following a prudent review, we have further tightened the criteria for loan originations in order to better align our loan portfolio with the macroeconomic conditions.”
According to him, a number of mitigating actions are being taken to address and drastically reduce these challenges, thereby putting Diamond Bank in a better position to achieve better results and strong earnings for the shareholders in the current business year.
CBN had raised an alarm of increase in NPL, in the financial sector due to the exposure of banks to the oil and gas sector.
The sharp increase in bad loans, according to the report, was due to a host of external and internal factors.
These include: Low and volatile oil prices; uncertainty about severe fiscal imbalance at the sub-national level of government; weak output growth; and eroding investor confidence.
The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, while briefing newsmen after the end of the 326th meeting of the Bankers’ Committee recently, said volume of NPL in the financial sector has risen following the economic challenges currently hitting the country.
In her words, “We have spoken about the falling oil prices. So, non-performing loans going up is not unexpected, it is normal. If people are finding it difficult to get paid their salaries and are not able to pay their loans, it is not unexpected.
“If corporates are not doing well as they used to do and they are not able to pay their loans, it is not something unusual to see the NPLs rising. The average figure of five per cent NPL is not out of this world.
“But then, on the other hand, it is not really that we are resting on our laurels; the Bankers’ Committee did discuss it. We spoke about things like debt factoring; it is not something that has been done yet, but there were some discussions about it.
“The most important thing is that banks are conscious of it; they are preserving capital; they have enough capital as we speak and they are not distributing as much of their capital as they would have in the past in anticipation of this risk that may crystallise.
“This is because they know that they need to have enough capital to absorb the risk that may happen.”
Despite the increase in the NPL level, Martins said the banks were adequately capitalised to withstand the shock.
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