Banks recover N738.15 billion from oil and gas sector in Nigeria

Central Bank of Nigeria’s drive to solve liquidity challenges in Nigeria’s financial sectors is already paying off as banks recovered N738.15 billion Non-Performing Loans (NPL) from the Oil and Gas sector.

According to the latest report released by the National Bureau of Statistics (NBS) for the third quarter (Q3) 2019, NPL in the oil and gas sector dropped from N1.002 trillion in Q3 2018 to N264 billion in Q3 2019. This suggests that in one year, banks recovered N738.15 billion NPL in the sector.

The latest NBS report shows that there was a major drop in NPL across sectors in the last one year, as Nigerian banks recovered loans from 16 sectors.

According to the report, Nigerian Banks recovered N738.15 million from the oil and gas sector; Power and Energy (N116.01 billion); Real Estate Activities (N74.02 billion); Manufacturing (N43.67 billion); Information and Communication (N39.40 billion), and Finance and Insurance (N34.42 billion).
Other sectors that witnessed reduction in NPL include Transportation and Storage (N32.27 billion); General (N26.42 billion); Scientific and Technical Activities (N5.19 billion); Mining and Quarrying (N2.69 billion); Art, Entertainment and Recreation (N2.36 billion); Human Health and Social Work Activities (N1 billion); Administrative and Support Services (N620 million); Capital Market (N600 million), and Public Utilities (450 million).
Meanwhile, NPL rose in a few sectors within the period as construction tops the list. The Bureau’s report shows that NPL in construction rose to N81.60 billion – an increase of N9.25 billion in one year.
Other sectors that recorded a rise in NPL include the agricultural sector (N49.96 billion); education (N8.69 billion); government (N1.28 billion), and waste management (N2.24 billion).
[READ MORE: Banks’ credit to government decline by N1.4 trillion]

According to the report, the percentage of non-performing loans to the total loan dropped to 6.67% at the end of Q3 2019. Although the Central Bank recently disclosed that the ratio of NPL to total loans had declined further to 6.56% at the end of October 2019 from 6.67% in September 2019.

Analysis of NPL data shows in the last one year, NPL dropped by N1.103 trillion, from N2.24 trillion in Q3 2018 to N1.108 trillion in Q3 2019.

The latest drop means NPL hit the lowest figure since the first quarter of 2016 when it stood at N1.29 trillion.
A close look at the banking sector data shows that gross loans rose to N15.22 trillion from N13.90 trillion in Q3. This implies that the CBN’s policy move to improve loans in the economy had largely affected the figure.
Despite the increase in gross loans, NPL dropped and this is good for the economy.

In Nigeria, NPLs represent one of the most serious challenge that affects liquidity challenge in the Nigerian banking sector. Bank loans are regarded as risk assets because the monies advanced as loans by the banks belong to depositors. The risk arises in the event of massive defaults and makes it difficult for depositors’ monies to be available on demand.

It should be noted that oftentimes, several prudential tools such as liquidity ratio, loan to deposit ratio, large exposure and reserve requirements have been applied to address the issues of banks’ non-performing loans.

In Nigeria, however, the Central Bank, through the Asset Management Corporation of Nigeria, has initiated policy action to down NPL in Nigeria. Recall that the details of the new AMCON law empower the corporation to access bank accounts, computer system components, electronic or mechanical devices of any debtor with a view to establishing the location of funds belonging to the debtor.

Hence, the CBN and AMCON in partnership with the Economic and Financial Crimes Commission (EFCC) have begun a clampdown on obligors.

Analysts and consultants are already calling for AMCON to leverage the 2019 Amended AMCON Act to declare obligors who are holding public office bankrupt.

According to the European Central Bank, a bank loan is considered non-performing when the borrower fails to pay the agreed instalments or interest after 90 days. They are also called “bad debts”.

Essentially, when banks lend out money, they do so with the hope that their borrowers will make their payments as scheduled. Meanwhile, borrowers sometimes default and are unable to repay their debts. That’s how non-performing loans become a problem for so many banks in Nigeria.

The oil and gas sectors had been the biggest concern until the recent huge drop which is traceable to CBN policy. As reported by Nairametrics, in a recent development, the Managing Director of SunTrust Bank Limited, Ayo Babatunde disclosed that there was a 100% suspension of debit interest on the oil marketers’ loans by banks.

As NPL drops, this means more funds to improve liquidity in key sectors of the economy. The Monetary Policy Communique in its recent communique stated that despite the drop in NPL, the figure remains above the prudential benchmark of 5.0%, and the CBN has been urged to sustain its current efforts, which have created this exorable prudential regime.