Banks in Nigeria are intensifying their efforts to tackle non-performing loans by deducting debts from defaulting borrowers’ accounts in other banks. This strategy is aimed at reducing the burden of non-performing loans on their financial statements, according to sources at The PUNCH.
Data obtained from the Central Bank of Nigeria (CBN) on Thursday revealed that non-performing loans in the banking sector had reached N1.5 trillion out of a total credit volume of N37.81 trillion as of June 2023.
This accounted for 4.1% of the loans during the review period, as indicated in the report.
In a report based on personal comments from members of the Monetary Policy Committee (MPC), the CBN noted, “The non-performing loans ratio remained below the maximum prudential requirement of 5.0%. It declined from 5.0% in June 2022 to 4.1% in 2023. The continuous decline in NPL was attributable to write-offs, restructuring of facilities, Global Standing Instruction, and sound credit risk management.”
The CBN introduced the Global Standing Instruction (GSI) guideline in 2020 to mitigate non-performing loans in the banking sector and monitor persistent loan defaulters, among other objectives.
According to the CBN, the GSI empowers banks to recover outstanding principal and interest upon default from any account held by the debtor across all financial institutions in Nigeria.
Regarding the financial health of the banks, the report noted that both the Capital Adequacy Ratio (CAR) and Liquidity Ratio (LR) remained above the required minimum thresholds.
Although CAR decreased to 11.2% in 2023 from 14.1%, it still exceeded the prudential requirement of 10.0%.
The report stated, “The LR was also above the 30.0% regulatory minimum ratio. It increased significantly from 42.6% in June 2022 to 48.4% in June 2023.”
Furthermore, the data revealed that the banking industry’s total assets and gross credit to the economy continued to rise as of June 2023.
It stated, “Total industry assets grew year-on-year by N30.92 trillion, or 47.21%, to N96.4 trillion between end-June 2022 and end-June 2023. The upward trend in total credit to the economy stands at N37.81 trillion as of June 2023 and has increased by N10.75 trillion, or 39.73%, between the end of June 2022 and the end of June 2023.”
The CBN attributed this credit growth to the implementation of the Loan-to-Deposit Ratio policy, which has been in effect since 2019.