CBN and Banks’ N649 Billion Bad Loans (By Akinrinde, Ibukunoluwa Jeremiah)

Email: ibukunoluwaakinrinde@gmail.com

Twitter: @IbukunoluwaIbk

The turbulent economic terrain of 2015 led to a huge stock of N649.63 billion Non-Performing Loans (NPLs) by the Deposit Money Banks (DMBs) compared to N42.86 billion NPLs in 2014 — a greater than 1400% increase in NPLs. This the director of Banking Supervision, Tokunbo Martins, described as “rising beyond tolerable limit.”

World Bank’s disclosure that Nigerian banks NPLs to total gross loans rose from 3% in 2014 to 5.2% in 2015, though exceeds the regulatory limit, seems to understate the gravity of the situation; as against the evidence of the CBN. The CBN Staff Report, stated that 18 banks recorded increased bad loans, while 8 banks exceeded the regulatory 5% limit ratio of bad loans to total loans; with 3 of the 8 banks recording about 10% bad loans to total loans.

Press sources, opined that the spike was attributed to the fall in crude oil prices at the global market, slower output growth, laxity in bank credit administration, poor risk management practices and poor surveillance by the CBN and Nigerian Deposit Insurance Corporation (NDIC), etc. Many of these indicate deterioration in the corporate governance of Nigerian DMBs.

This shows that should the CBN had eased the money supply at the last MPC meeting, the DMBs would not have responded with increased loans to the private sector for fear of NPLs. This would, therefore, lead to a worsening ease of doing business in Nigeria and also pose as a gloomy indicator to FDI inflow into Nigeria.

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