The amount of bad loans in the banking industry rose sharply by 78.8 percent to N649.63 billion in 2015, indicating severe deterioration in the quality of the loan portfolio of the 22 banks. This was contained in a Central Bank of Nigeria (CBN) Staff report presented to the Monetary Policy Committee (MPC).
The report revealed general increase in bad loans (non performing loans) among the 22 Deposit Money Banks in the country. This was despite 30 percent decline in new loans granted by banks in 2015 to N5.78 trillion.
According to the report, 18 out the 22 banks recorded increase in bad loans. Furthermore, the number of banks that exceeded the regulatory limit of five percent for ratio of bad loans to total loans rose from three in 2014 to eight in 2015, with three banks exceeding 10 percent.
The report reveal that the ratio of bad loans for the industry relative to total loans rose to 4.88 percent, which is 1.2 percent less than the regulatory limit of 5.0 percent industry. The sharp increase in bad loans, according to the report was due to a host of external and internal factors.
These include: Low and volatile Oil prices; uncertainty about severe fiscal imbalance at the sub-national level of government; weak output growth; and eroding investor confidence.
The Monetary Policy Committee (MPC) of the CBN at its meeting held last week had expressed concern over the reluctance of banks to lend to the private sector due to the sharp increase in bad loans in the industry. According to the Committee, this apathy contributed to the slow growth of the economy in 2015 and also to the build up of excess cash (liquidity) in the banking system.
Commenting on this, CBN Governor, Mr. Godwin Emefiele, said, “ Net domestic credit (NDC) grew by 3.71 per cent in the same period, annualized, at 22.26 per cent. At this rate, the growth rate of NDC was below the provisional benchmark of 17.94 per cent for 2016. Credit to the private sector grew by 1.45 per cent in February 2016, which annualized to a growth of 8.70 per cent, below the benchmark growth of 13.28 per cent.
The Committee noted with concern, the dismal performance of growth in credit to the private sector, noting that even at that, credit went primarily to low employment elasticity sectors of the economy.
This had a significant negative impact on output growth. “Money market interest rates reflected the liquidity situation in the banking system. Average inter-bank call and OBB rates, which stood at 0.5 and 2.77 per cent on 25 January 2016, closed at 4.00 and 5.00 per cent, respectively, on March 9, 2016. Between January 25th and end-February 2015, interbank call and OBB rates averaged 1.43 and 2.68 per cent, respectively.
This was traced to liquidity surfeit in the banking system. The deposit money banks were, however, reluctant to grant new credit because of rising non-performing loans (NPLs), mainly in the oil sector, amongst other reasons”.