Five banks violate CBN’s 5% NPL ratio threshold

About five Deposit Money Banks (DMBs) have violated Central Bank of Nigeria (CBN)’s five per cent Non-Performing Loans (NPL) ratio threshold.
Bad loans in banking system soared to more than double the limit set by the CBN as the industry struggles with an economic downturn.
The current macro headwinds has seen a slowdown in economic activities, which has led to non-performing loans (NPL) in the sector rising, according to CBN, to 11.7 per cent as at second quarter of 2016.
The banks involved are Unity Bank Plc, Stanbic IBTC Holdings, Diamond Bank Plc, Union Bank Plc and FBN Holdings.
Unity Bank recorded the highest in 2016 as its NPL ratio moved to 97 per cent from 77 per cent, followed by FBN Holdings Plc.
FBN Holdings NPL ratio increased to 24.4 per cent in 2016 from 18.1 per cent in 2015 with the increased provision on delinquent asset.
After Unity Bank and FBN Holdings come, Union Bank of Nigeria that recorded 6.9 per cent in NPL ratio from 6.67 per cent in 2015 while Stanbic IBTC Holdings NPL ratio closed 2016 at 6.4 per cent from 8.5 per cent in 2015.
In addition, Diamond Bank’s NPL ratio moved from 6.9 per cent in 2015 to 9.5 per cent in 2016.
According to InvestmentOne research, the difficult macro environment, foreign exchange scarcity, in addition to the disruptions to oil production (negatively impacting the quality of loans to Oil & Gas companies), may see NPLs increase further.
They report by InvestmentOne said, “This may keep loan impairment charges high in the immediate as banks try to maintain adequate NPL coverage.
“Conversely, if the administration adds more flexibility to its foreign exchange policy, we may see the local currency depreciate further at the interbank market.
“Although this should boost foreign exchange related gains and income, it may also lead to an expansion in risk assets. This may pressure capital adequacy levels, particularly for tier 2 names, thereby increasing the need to raise fresh capital to maintain adequate buffers.
“Nonetheless, as the CBN moves to a more accommodative stance, the budget implementation kicks in, and investors’ confidence improves, we may see a slight pickup in lending to the private sector in H2 2017.
“While no decision regarding AMCON 2 has been made, we believe that the creation of a company to acquire toxic assets and free up the balance sheet of banks, may also support lending activities.” It said.