CBN:  Bad debt ratio drops to 9.36%

The Non-Performing Loan (NPL) ratio in the country’s banking system dropped to single digit at 9.36 per cent in June 2019 for the first time in about three months, the Central Bank of Nigeria (CBN) has said.

Deputy Governor in charge of Financial System Stability at the apex bank, Mrs. Aishah Ahmad, stated this in her personal statement for the Monetary Policy Committee (MPC) meeting last month, which along with other MPC members’ personal statements were posted on the CBN’s website yesterday.

The MPC members stated that the continuous decline in banks’ NPL ratios indicated that the Nigerian financial sector remains sound even as they expressed concern over low level of credit to the private sector as well as the likely impact of external vulnerabilities on domestic economy.

According to her, “banking industry soundness indicators remain positive; Non-Performing Loan (NPL) ratios turned single digit at 9.36 per cent in June 2019 for the first time in 40 months, whilst industry capital adequacy, liquidity and profitability are robust.

“However, several months of low credit to the private sector amidst burgeoning treasury securities activity prompted the Central Bank of Nigeria’s (CBN) policy statement on July 3, mandating DMBs to build up their minimum Loan to Deposit Ratio (LDR) to 60 per cent over a three month period, with additional incentives (150 per cent weighting) for new SMEs, retail, mortgage and consumer loans.”

She further stated that the “focus on the minimum industry LDR is expected to stimulate additional private sector credit growth,reduce credit concentration in energy assets and large corporates and lower the cost of credit – which has remained sticky downwards despite recent decreases in treasury yields. This expanded finance for individuals and small businesses will create jobs, enhance consumer spending and stimulate growth.”

Similarly, in his personal statement, Professor  Dahiru Balami said: “In July 2019, the financial soundness indicators showed that the Nigerian financial sector had remained sound. The Capital Adequacy Ratio (CAR) stood at 15.26 per cent, which was slightly above the prudential requirements of 15 per cent. This compares favourably with Nigeria’s peers, such as South Africa, Malaysia and Turkey with CAR of 16.4, 17.3 and 18.1 per cent respectively.

“Also of importance was the decline of the Non-Performing loans (NPLs), which was a good signal that CBN policies in relation to NPLs were effective. Similarly, the liquidity ratio (LR) in June 2019 improved year-on-year and higher than that of peer’s countries. The performance of the banking sector in terms of both Return on Equity (ROE) and Return on Asset (ROA) pointed to a healthy position of the banking sector.

“Key major risks and vulnerabilities identified in the Nigerian banking were slow economic growth, high inflation, growing debts sticky NPLs; Security and insurgency challenges.”

Commenting on external risks to the Nigerian economy, CBN Deputy Governor, Corporate Services Directorate, Mr. Edward Lamtek Adamu, stated in his statement that “much like the previous meeting, the July 2019 meeting of the Monetary Policy Committee (MPC) held against the backdrop of continued stability in key domestic economic and financial system indicators relative to 2018. It is however concerning that external vulnerabilities have continued to build and could soon start to undermine domestic stability unless enough safeguards are put in place.”

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