Operators raise concern over possible rise in non-performing loans

With the net foreign exchange (FX) loss of over N700 billion suffered by major listed firms and the continuous poor performance of the economy, there are fears that the non-performing loans (NPLs) of banks will record a spike shortly.

Data from the Central Bank of Nigeria (CBN) showed that the industry NPL rose to 4.5 per cent in May, which is still within the regulatory threshold. Operators said the tough economy is already putting pressure on the real sector’s ability to fulfill their debt obligation. They pointed to the contraction of the industrial sector by 7.1 index points occasioned by rising input cost and low-capacity utilisation as a sign things are not well with the economy.

Head of Equity, Planet Capital, Dr Paul Uzum, said companies are recording huge business losses in operations due to the high interest rate and FX loss, which will make many of them default on their loan obligations or refuse to repay such loans entirely.

“That means that the banks should be mindful of the rising default risk and the tendency for most of these loans to go bad. They need to increase provisions for the loans,” he said. Business confidence as indicated by the latest PMI, a report published by Stanbic IBTC Nigeria Plc, fell to 49.2 in July from 50.1 in June.

President of the Independence Shareholders Association, Moses Igbrude, said the prevailing economic downturn could trigger a spike in banks’ NPL level, which could hamper their capacity to pay their debts. He stressed the need for banks to adopt an appropriate framework that would help manage risks associated with huge loans.