International Finance

Nigerian banks NPA loan book reaches ₦1.5 tr in 2018

The NPAs show a 15% increase when compared to ₦1.3tr of non-performing loans in 2017

A little more than a tenth of the loan book in the Nigerian banks accounting for ₦1.5 trillion were declared as non-performing assets (NPAs) loans in 2018, the Guardian reported.

The figure is a 15 percent increase when compared to ₦1.5 trillion in 2017. Following the adoption of IFRS 9, these loans were found to be in Stage 3. Stage 3 loans can be assumed to be individually impaired or non-performing loans.

The 15 percent increase in non-performing loans in 2018 compared to 2017 proved the deterioration of the loan assets recognised by Nigerian banks. The increase in non-performing loans proved that most companies are yet to recover from the economic recession especially the impact of the foreign exchange rate crisis.

Stage 2 loans amounted to ₦793 billion in 2017. Stage 2 loans are those which have passed their due dates but are not impaired. These loans do not have objective evidence of credit loss. So after the completion of 90 days being in Stage 2 and if no evidence is found of an increase in credit loss, such loans can be pushed back to Stage 1.

Nigeria’s banking industry’s total loans declined by 2.8 percent with repayment by some customers and the cautious approach by banks towards extending further loans being major reasons.

“Nigerian banks asset risk and profitability will remain key rating challenges, but we expect these challenges to gradually decline in 2020 as the economy picks up,” said Peter Mushangwe, an analyst at Moody’s told the media.

According to Moody’s report, Non-performing loans in Nigeria will decline to 8 percent or 7 percent over the next 12 to 18 months from 10.9 percent in 2018. Nigeria’s GDP is also expected to expand to 2.8 percent in 2020.

Nigeria has had its own fair share of the impact of the 2008 global financial meltdown on its banking and financial sector. This forced the government to adopt some innovative measures to prevent a systemic collapse of the banking system.  The most significant of all was the establishment of Assets Management Corporation of Nigeria (AMCON) in 2010.

So far Asset Management Corporation of Nigeria (AMCON) has recovered about ₦1.22 trillion of the bad debts.

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