Banks’ NPL Hit The Lowest In 10 years-CBN

The Central Bank of Nigeria (CBN) stated that commercial banks’ non-performing loans (NPLs) levels in Nigeria fell below 5% to 4.94% at the end of December 2021, for the first time in about a decade.

This was disclosed in the personal statements of the members of the Monetary Policy Committee (MPC).

An NPL ratio is used to measure the level of the bank’s credit risk and the quality of outstanding loans. A high ratio means the bank bears a greater risk of loss if it fails to recover the owed amounts, while a low ratio means that the outstanding loans pose a low risk to the bank.

Following the gradual improvement in the Non-Performing Loans (NPLs) ratio from 5.10% in November 2021 to 4.94% in December 2021–a first in a long time—the MPC remarked on the banking system’s continued resilience.

The Committee also noted that the liquidity ratio remained well above its prudential limit at 41.3%, though Capital Adequacy Ratio (CAR) declined marginally to 14.53% in December 2021 from 14.90% in the previous month. The Committee thus urged the Bank to sustain its firm regulatory surveillance.

What the CBN is saying about non-performing loans

According to CBN Deputy Governor, Aisha Ahmad, non-performing loans dropped to their lowest level in over a decade despite the increased lending by banks.

She said, “Total credit also increased by N4.09 trillion between end- December 2020 and end-December 2021 with significant growth in credit to manufacturing, General commerce and Oil & Gas sectors. This impressive increase was achieved amidst continued decline in non-performing loans ratio from 5.10% in November 2021 to 4.94% in December 2021 (6 basis points below the regulatory benchmark) for the first time in over a decade.

“Furthermore, results of stress tests showed resilience of banks’ solvency and liquidity ratios in response to potential severe macroeconomic shocks. However, the Bank must remain vigilant to proactively manage probable macro risks to the financial system such as lingering spillover effects of the pandemic, winding down of forbearance measures, and myriad risks to financial stability including exchange rate, operational and cyber security risks.”

Read: 100 for 100 Policy: How to apply for CBN’s loan

Another member of the MPC, Akinniju Festus noted that Capital Adequacy Ratio despite its slight decline from 15.1% in December 2020 to 14.53% in December 2021, is still above the prudential requirement of 10%.

“Liquidity ratio at 41.33% was also higher than 30% prudential requirement. Both Returns on Assets and Returns on Equity fell in December 2021 relative to December 2020. Operating costs to income rose from 68.2% in December 2020 to 73.1% in December 2021,” he said.