Investors worry about banks’ N814 billion NPLs in 2021
Dissatisfied by the huge rise in banks’ Non-Performing Loan (NPLs) in the 2021 financial year, triggered by the prevailing economic downturn, investors at the weekend, urged government to stimulate economic activities, particularly, in ensuring security and facilitating the movement of agricultural produce as well as the seamless export of commodities.
The investors argued that the Central Bank of Nigeria (CBN) might be reaching the limit of its monetary policy tools in stimulating the economy. This is particularly so if the fiscal complements are not immediately activated.
They expressed fear that the trend, if not controlled, could shrink banks’ bottomline in the current financial year and impact negatively on their dividend yield.
According to them, government’s inability to provide an enabling environment that will boost operations of companies under the real sector and improve their profits would ultimately shore up banks’ NPLs, and erode their profitability.
This is exacerbated by the pressure of the COVID-19 crisis on corporate cash flows for debt service, particularly, the impact of the foreign exchange (forex) rate crises, which has increased the level of corporate loan default
The CBN had, in its pursuit of domestic macroeconomic and financial stability, compelled the Deposit Money Banks to increase lending to real sector, smallholder farmers, Micro, Small and Medium Enterprises (MSMEs) consumer credit and mortgage facilities for bank customers; growing external reserves; and supporting efforts aimed at diversifying the economy through intervention programmes.
President of Standard Shareholders Association, Godwin Anono, said the situation is made worse by the fact that most companies are yet to recover from the economic recession, the persistent weak domestic operating conditions, and sluggish economic growth witnessed in the past few years.
According to him, the nation’s economic rebound will require not only complementary fiscal policies, but also actions to achieve the desired objectives, particularly in improving the transportation network in the country so that goods can be moved easily from farmland to the market, which will reduce wastage and contain costs to boost the manufacturing sector.
Findings revealed that the aggregate NPLs of nine banks increased to N814.08 billion in 2021, representing 3.16 per cent increase from the N789.1 billion reported in 2020.
The nine banks are Access Holdings Plc, Zenith Bank Plc, Wema Bank Plc, FCMB Group, Union Bank of Nigeria Plc, Stanbic IBTC Holdings Plc.
Others include Guaranty Trust Holding Plc, United Bank for Africa Plc, and Ecobank Nigeria. However, with the banking sector’s NPL ratio closing 2021 at 4.85 per cent, some of the nine banks remained within the five per cent NPL ratio stipulated by the Central Bank of Nigeria.
Further findings also show that while some of the banks recorded an increase in their NPLs during the period under review, a number of them recorded a significant decline in their NPLs.
The banks’ audited 2021 financial statements showed that Access Holdings, Zenith Bank and GTCO reported the top three highest NPL by value among the nine banks, while Stanbic IBTC Holdings reported the lowest.
Access Bank, in 2021 ,reported N181.5 billion NPL by value, representing an increase of 4.3 per cent from the N161.2 billion it recorded in 2020, while Zenith Bank’s hit N146.8 billion in 2021 from N125.2 billion recorded in 2020, an increase of 17.3 per cent. Wema Bank, in 2021, reported N21.3 billion, an increase of 19.3 per cent from N19.3 billion in 2020, while FCMB Group’s NPL rose to N45.93 billion, representing a 61 per cent increase from N28.57 billion it reported in 2020.
Others are Union Bank of Nigeria with N38.66bn NPL in 2021 from N29.45bn reported in 2020, as Stanbic IBTC Holdings reported a 23.4 per cent drop in its NPL to N20.3 billion in 2021 from N25.5 billion in 2020.
Anono pointed out that the state of the economy could send those loans into becoming delinquent when the borrower does not intend to make it so, noting that when the economy is challenged, the tendency of loans becoming delinquent is huge.
To boost the performance of the real sectors, Anono stated that port and land border reforms must be implemented to achieve a more efficient exportation process and to reduce smuggling activities, alongside the establishment of a special court for speedy adjudication of disputes arising from commercial transactions.
Also imperative, according to him, is significant improvement in security of lives and properties in the country, particularly on the farmlands, that have been ravaged by herdsmen crisis and ensuing violence claiming lives.
Furthermore, he stressed the need for fiscal response to include implementations of measures to improve electricity generation, transmission and distribution in Nigeria, as it is key to reducing the costs of doing business, so that locally manufactured goods would be competitive both in local and international markets.
Awani submitted that implementation of these measures would create new businesses, reduce import dependency, grow foreign exchange earnings, ensure stable exchange rate and possibly cause the value of the currency to remain stable.
On the other hand, he noted that if these issues are not addressed, increasing lending to the economy might lead to a rise in non-performing loans in the Nigerian financial system.
President of Ibadanzone Shareholders Association, Eric Akinduro said there is expectation of growth in non-oil exports from Nigeria and reduction in the cost of exporting goods from Nigeria, thereby making exportation more profitable than before.
He argued that the implementation of the needed fiscal policy might also be a boost to the development of commodity exchange and opportunities in logistics business as a result of the growth of agriculture and related businesses.
Akinduro admitted that increased lending to the real sector in Nigeria would engender shared prosperity, reduction in smuggling and rise in local production, but reiterated that there is need for an urgent fiscal policy response to grow the economy.