Banks’ bad loans near 3-year low on stronger oil price, economic pick-up

Banks’ bad loans near 3-year low on stronger oil price, economic pick-up

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Bad loans of Nigerian banks fell to its lowest level since the second quarter of 2016 when a crash in global oil prices wreaked havoc on Africa’s largest economy and sent lenders’ book bad as debtors were unable to settle their obligations.

Data from the Abuja-based National Bureau of Statistics (NBS) showed that non-performing loans of the Nigerian banking industry fell for three straight quarters to bottom at 10.83 percent in the first quarter of 2019.

Gbolohan Ologunro, equity analyst at Lagos-based CSL Stockbrokers cited improving economy and oil price rebound as major drivers of improved asset quality of banks which have reflected in the decline in NPL.

“Since Nigeria exited the recession, the economy has recorded continued-albeit slow- growth which has enabled corporates to repay their obligations,” Ologunro told BusinessDay, adding that the recovery in oil price between 2017 and 2018 was a stronger driver of the NPL decline given lenders’ high exposure to the oil sector.

“Some banks to have recorded significant pay down from their customers,” the equity analyst said.

Banks’ gross loans rose marginally by 0.85 percent quarter-on-quarter to N15.48 trillion in the first three months of 2019, compared with N15.35 trillion in the previous quarter, while non-performing loans dip 6.5 percent to N1.67 trillion in the review quarter.

Analysis of the total loan portfolio of Nigerian banks in four months to April 2019 revealed that lenders have 30 percent exposure to the oil and gas sector, the highest across all sectors.

Bad loans in the oil & gas sector totaled N4.7 trillion, with foreign currency accounting (N2.8trn) for 60 percent share and naira component (N1.9trn) taking the remaining 40 percent.

Banks’ have 15 percent exposure to the manufacturing sector, and 9 percent to the public sector. Total bad loans in both sectors stood at N2.2 trillion and N1.4 trillion respectively.

Despite the improvement in NPL, the sluggish growth of the economy has failed to convince the banks to increase lending to boost real sector growth.

“Banks are risk averse towards the broader economy and are channelling a large chunk of consumer deposit to take advantage of attractive yields in fixed income market,’’ Fola Abimbola, equity analyst said.

Big banks received deposits worth N18.7 trillion from customers in the first quarter of 2019, the highest in five years BusinessDay findings showed.

However, the loan-to-deposit ratio tumbled to its lowest level in five years at 54 percent, indicative that lenders are shying away from financial intermediation.

The trend prompted the Monetary Policy Committee at its last meeting in May to threaten to place a cap on banks’ investment in the fixed income securities to enhance credit flow to the real sector.

Ologunro positioned that a pickup in aggregate demand driven by stronger growth and improvement in the business operating environment would encourage banks to improve lending to the real sector.

“I don’t think the risk environment has improved as much as to encourage banks to increase lending,” Ologrunro said.


Israel Odubola & Segun Adams

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