Some financial experts and market operators are speaking in discordant tones over the 3.5 percent decline in Nigerian banks’ non-performing loans (NPLs) as of the third quarter of 2020.
An NPL is a loan in which the borrower is in default and has not made any scheduled payments of principal or interest for over a certain period.
Data from the National Bureau of Statistics (NBS) showed that the total volume of NPLs stock in banks decreased to N1.169 trillion in the third quarter of 2020, representing a 3.5percent dip when compared to the second quarter value of N1.212 trillion, indicating a decline of N42.4 billion in three months.
“With the decline in the size of NPL, one would expect that the liquidity of the banks would be buoyant enough to grant more credits to grow the economy”, said a financial Economist, Mr. Adetunde Peters.
He believes this is a good opportunity for the banks to begin making more profits if the development can be sustained, stressing that huge bad loan portfolio is the bane and nightmare of most banks.
“It is on record that most large banks that went under in the past was as a result of humongous toxic loans in their books, which largely squeezed their liquidity to meet depositors’ obligation as at when due,” he said.
However, there are concerns that this may not be the true reflection of bad loans in the system considering the recession and level of economic crunch in the country.
Many banks believe it is better and safer to be sanctioned by CBN than give out loans that they are not sure of recovering.
But the governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, had explained that the banking industry regulator was proactive in its anticipation of the possible effects of the COVID-19 pandemic on people and companies’ ability to earn revenue and pay workers’ salaries, which would make it difficult for debtors to pay back their bank loans.
He said the Monetary Policy Committee (MPC) provided funding support for banks for businesses and households impacted by the pandemic and directed the banks to restructure the loans the people were unable to service under fresh terms.
In the new NBS report, in terms of credit to the private sector, the total value of credit allocated by the banks stood at N19.87 trillion as of Q3 2020.
“Oil and gas and manufacturing sectors got credit allocation of N3.74trillion and N3.03trillion to record the highest credit allocation as at the period under review,” the NBS said.