NPLs in banks hit N1.21trn in six months

At the close of business activities for the first half of 2020, Non-Performing Loans (NPLs) in the banking industry increased by 14 per cent to a whopping N1.21 trillion, the latest data released by the National Bureau of Statistics (NBS) has revealed.

This development ended a two-year trend of continued decline in the NPLs, since the third quarter (Q3) of 2018.

The recent upward trend in NPLs is mostly attributed to non-payment of loans by bank obligors due to the COVID-19 induced lockdowns. Banks operating in Nigeria have seen asset quality decline due to the fall in oil prices, among other domestic and foreign challenges.

According to the latest banking sector report released by the bureau, NPL in banks increased to N1.212 trillion at the end of June 2020, from N1.059 trillion recorded in December 2019, indicating that NPLs across banks rose by N152.4 billion or 14.38 per cent in six months.

The report stated that “At the end of H1 2020, Oil and Gas sector contributed the largest share to NPLs in banks, recording a significant 22.2per cent increase in NPLs from N219.91 billion recorded at the end of Q4 2019 to N268.79 billion in Q2 2020.

“Construction recorded a 93.4 per cent increase, from N86.79 billion in Q2 2019 to N167.86 billion in Q2 2020. One of the biggest contributors to NPLs in Nigerian banks was Commerce and Trade as it recorded a significant 17.5 per cent rise from N146 billion to N171.55 billion at the end of Q2 2020.”

The members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) noted the decrease in NPLs ratio to 6.4 per cent at end-June 2020 from 9.4 per cent in the corresponding period of 2019, on an account of increased recoveries, write-offs and disposals.

The Committee expressed confidence in the stability of the banking system and urged the Bank to monitor the compliance of DMBs to its prudential and regulatory measures to sustain the soundness and safety of the banking industry.

Meanwhile, despite the rise in NPLs across critical sectors, some sectors including agriculture, transportation, power & energy and education recorded a decline.At N1.2 trillion NP are still relatively low compared to previous years. However, there is concern that this may not be the true reflection of bad loans in the country considering the imminent recession and level economic crunch in the country.