MPC members raise concern over Banks high NPLs

Temitope Adebayo

Monetary Policy Committee (MPC) members of the Central Bank of Nigeria (CBN) have raised concern over Banks Non-Performing Loans (NPLs) ratio that is still higher than the prudential limit of five per cent.

In his personal statement at the last meeting, the Deputy Governor, Economic Policy, CBN, Okwu Nnanna stated that banks NPL ratio is still high and above the prudential limit, disclosing that though the return on equity and return on asset showed the decline between February and April 2019, but still high compared to the comparator countries where efficiency and management levels are much higher.

According to him, the assets of the banking industry have continued to trend upwards driven by increased investment in government securities.

“This leads us to the issue of concern in the industry’s asset structure. The proportion of government securities in the banking industry’s asset structure are growing while that of loans and advances is declining; loans and advances are being displaced by banks’ investment in government securities which have become seductive to them because of their high yields and risk-free nature.

“This cannot be allowed to continue as it implies abandonment of their primary mandate of intermediation to the detriment of production, distribution and exchange that are yearning for loans financing. Even though the number of new credits increased strongly in April 2019 compared to December 2018, the value of such credits is much lower while the credit is highly concentrated in a few obligors”, he explained.

Also, Deputy Governor, Corporate Services, CBN, Mr Edward Adamu, stated that other vulnerabilities in the banking sector include high concentration and contagion risks as well as significant foreign exchange exposure.

“In the banking system, major financial soundness indicators (FSIs) further improved in April 2019 due mainly to recoveries, loan disposals and write-offs.

“Industry capital adequacy ratio (CAR) increased marginally to 15.60 per cent in April 2019 from 15.14 per cent in February 2019, while NPLs decreased to 10.95 per cent from 11.28 per cent.

“However, the NPL ratio is still higher than the prudential limit of five per cent. Other vulnerabilities in the industry include high concentration and contagion risks as well as significant FX exposure.

“These conditions have tended to increase averseness to risk in the industry leading to some form of asset substitution. It is especially concerning that credit to the private sector is declining and this needs to be halted and possibly reversed to strengthen economic activity and job creation”, his personal statement reads.

In addition, Dahiru Balami, another member of the MPC said, “On the non-NPLs ratio, there was an improvement as the ratio declined from 11.28 per cent in February 2019 to 10.95 per cent in April 2019.

“The reduction in the NPLs was driven by write-offs and recoveries. There was also an increase in provisioning by banks for NPLs in the review period.

“Similarly, the industry liquidity ratio (LR) rose further from 51.05 per cent in February 2019 to 52.61 per cent in April 2019. This performance was 4.81 percentage points higher when compared with the ratio at end-April 2018. Overall, the Nigerian banking sector remains sound and resilient.”