Banks in Nigeria have been actively writing off debts and debiting accounts of non-cooperative debtors from other banks, in a concerted effort to mitigate the volume of non-performing loans on their financial statements, according to sources within the industry.
Data recently released by the Central Bank of Nigeria (CBN) revealed that as of the end of June 2023, non-performing loans in the country’s banking sector amounted to N1.5 trillion, accounting for 4.1 percent of the total credit in the sector, which stood at N37.81 trillion during the same period.
The report, based on figures from the CBN, highlighted a positive trend as non-performing loans decreased from 5.0 percent in June 2022 to the current 4.1 percent in 2023. The decline has been attributed to various measures, including debt write-offs, loan restructuring, the implementation of Global Standing Instruction (GSI), and improved credit risk management practices by financial institutions.
The CBN introduced the GSI guideline in 2020 as part of its strategy to reduce non-performing loans in the banking sector and monitor habitual loan defaulters. Under the GSI, banks have the authority to recover outstanding principal and interest from any account held by the debtor across all financial institutions in Nigeria.
Regarding the financial health of the banks themselves, the CBN report noted that the Capital Adequacy Ratio (CAR) and Liquidity Ratio (LR) have remained above the required minimum thresholds. Although CAR decreased to 11.2 percent in 2023 from 14.1 percent, it remained above the prudential requirement of 10.0 percent. The LR, too, exceeded the regulatory minimum ratio, significantly increasing from 42.6 percent in June 2022 to 48.4 percent in June 2023.
Furthermore, the report revealed that the banking industry’s total assets and gross credit to the economy have consistently shown upward trends. Total industry assets grew year-on-year by N30.92 trillion, representing a 47.21 percent increase, reaching N96.4 trillion between the end of June 2022 and June 2023. The growth in total credit to the economy was also noteworthy, with N37.81 trillion reported as of June 2023. This represented a substantial increase of N10.75 trillion or 39.73 percent over the year, driven by the Central Bank’s Loan-to-Deposit Ratio policy, which has been in effect since 2019.
The measures undertaken by Nigerian banks to address non-performing loans, coupled with sound financial ratios and a robust credit environment, demonstrate resilience and progress within the country’s banking sector. The decline in non-performing loans reflects a positive shift towards financial stability and prudent risk management practices.