CBN Insist Banks Must Write-Off NPLs

nigeria

The Central Bank of Nigeria, CBN has insist that banks must write-off by making immediate provision for all non-performing loans in their books instead of waiting for the mandatory full year.

In a letter issued by Tokunbo Martins, CBN’s Head of Banking Supervision said:

“The CBN acknowledges the request by banks to amend the requirements of S.3.21 (a) of the Prudential Guidelines, which mandate banks to retain in their records, fully provided Non-Performing Loans (NPLs) for a period of one year before write-off”.

“The CBN has no intention to repeal the provision of the above mentioned section of the guidelines. In view of the current macro-economic challenges however, the CBN hereby grants a one-off forbearance, this year 2016, to banks, to write-off fully provided NPLs without waiting for the mandatory one year”.

“Given the recent NGN depreciation as the economy adjusts to a more flexible regime, it is prudent to consider the impact of FX-denominated loans on bank capital.  Hence the call for provisioning. However, the CBN also recognises that current economic challenges call for a carefully- calibrated countercyclical approach”.

“This likely explains the granting of the one-off forbearance, where banks will be allowed to write off any fully-provided NPLs, without waiting a full year before the write-off, as is mandatory”, he said.

According to the CBN, the oil and gas companies are indebted to banks to the tune of about NGN3.673 trillion. A breakdown of the indebtedness shows that oil and gas firms’ total credit stood at NGN2.153 trillion as at March 2015, compared to NGN2.3 trillion in February 2015 and N2.047 trillion as at December 2014.

Last month, the CBN had also instructed all banks to make provisions for all their foreign currency loans. These moves are geared towards ensuring banks get out of the cold as soon as possible so that they can boost economic recovery.

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