Non-performing Loans Surge To 12.5%

Nigeria’s main rating agency, Agusto & Co, have revealed that non-performing loans are expected to jump to 12.5 per cent of total loans in 2016, up from the Central Bank of Nigeria, CBN target level of five per cent at the end of 2015.
This rise in the volume of non-performing loans is coming as lenders witness a spillover from an oil sector credit boom that ended abruptly in 2015.
Also pressure in the banking system has continued to soar with swollen loan books which are mostly in dollars coupled with the dwindling currency and acute foreign exchange shortages.

Meanwhile,  governor of the apex bank, Godwin Emefiele, has urged the banking public not to panic about the banking system, assuring them that their deposits are safe.

Depositors and investors are generally giving the CBN the benefit of the doubt, after the apex bank shored up mid-tier lender, Skye Bank, this month with a loan and replaced its management when its capital fell below levels required by regulators.

Overall, 42 per cent of loans extended by Nigerian banks are in dollars. If the naira falls far enough, it will force some banks to recapitalize to have enough naira to stay within financial stability limits.

Sterling Bank’s chief executive, Abubakar Suleiman, said in February that a naira drop of just 20 per cent would trigger a “wave” of bank mergers. Since a devaluation last month, the currency has lost double that against the dollar.

“There is concern around the evolution of banks’ capital adequacy if the naira continues to weaken,” said Standard Chartered Africa chief economist, Razia Khan. As the naira weakens, foreign exchange loans are likely to be problematic.”

London-based analysts, Exotix, said that UBA, Diamond Bank and Guaranty Trust Bank (GTB) – Nigeria’s biggest bank by market capitalisation, have the highest ratio of dollar loans, at 50 per cent apiece.

 

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