Finance

Analysts divided over drop in banks’ non-performing loans

The recent declaration by the court that N50 stamp duty on teller deposits or electronic transfer of funds is illegal is in order, frontline Lagos Lawyer, Fred Nzeako, has said.

Financial analysts are speaking in discordant tones over the 3.5 percent decline in Nigerian banks’ non-performing loans (NPLs) as of the third quarter of 2020 as shown by latest figures from the National Bureau of Statistics (NBS).

An NPL is a loan in which the borrower is in default and has not made any scheduled payments of principal or interest for over a certain period.

According to figures obtained from the NBS’ latest ‘Selected Banking Sector Data Report’, the total volume of NPLs stock in banks decreased to N1.169 trillion in the third quarter of 2020, representing a 3.5% dip when compared to the second quarter value of N1.212 trillion, indicating a decline of N42.4 billion in three months.

“With the decline in the size of NPL, one would expect that the liquidity of the banks would be buoyant enough to grant more credits to grow the economy”, said Mr. Victor Opara, an Economist.

Opara believes this is a good opportunity for the banks to begin making more profits if the development can be sustained.

He stressed that huge bad loan portfolio is the bane and nightmare of most banks.

“It is on record that most large banks that went under in the past was as a result of humongous toxic loans in their books, which largely squeezed their liquidity to meet depositors’ obligation as at when due,” Opara told newsmen.

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However, there are concerns that this may not be the true reflection of bad loans in the system considering the recession and level of economic crunch in the country.

For an ex-banker and lead partner, Patrick Modilim & Co, the NPLs are declining because the banks are not following prudential guidelines due to the global economic crisis occasioned by the Covid-19 pandemic.

Modilim described 2020 as a special year globally of low economic activities, with many organisations, including the banks, operating below capacity, even in credit provision.

In a telephone interview, Modilim said: “If they (the banks) were to follow prudential guidelines, there is no how the NPLs will be declining in a period when most individuals and organization do not have the capacity to live up to loan obligations.

“Even most of the banks are not lending. So, if you are not lending, how do you record bad loans in your loan books?

“Many banks believe it is better and safer to be sanctioned by CBN than give out loans that they are not sure of recovering.”

But the governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, had explained that the banking industry regulator was proactive in its anticipation of the possible effects of the COVID-19 pandemic on people and companies’ ability to earn revenue and pay workers’ salaries, which would make it difficult for debtors to pay back their bank loans.

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He said the Monetary Policy Committee (MPC) provided funding support for banks for businesses and households impacted by the pandemic and directed the banks to restructure the loans the people were unable to service under fresh terms.

In the new NBS report, in terms of credit to the private sector, the total value of credit allocated by the banks stood at N19.87 trillion as of Q3 2020.

“Oil and gas and manufacturing sectors got credit allocation of N3.74tn and N3.03tn to record the highest credit allocation as at the period under review,” the NBS said.

According to the report, the General Commerce sector achieved the highest drop of 12.79% in the NPL, moving from N171.55 billion in Q2 2020 to N149.60 billion in Q3 2020, followed by the Oil and Gas sector that decreased to N238.26 billion in Q3 2020 from N268.79 billion in Q2 2020, a dip of 11.36%.

However, the highest surge in the NPL volume was contributed by the Transportation and Storage sector with 26.87%, with the NPL volume increasing to N46.99 billion in Q3 2020 from N37.04 billion in Q2 2020. It was followed by Power and Energy with 6.17%, moving from N30.81 billion in Q2 2020 to N32.71 billion in Q3 2020.

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