Banks record ₦1 5tr non performing loans in 2018

A significant issue in the Nigerian banking sector!

According to a report by the National Bureau of Statistics (NBS) in 2019, Nigerian banks recorded a total of ₦1.5 trillion (approximately $4 billion USD) in non-performing loans (NPLs) as of December 2018.

Non-performing loans refer to loans that are not being repaid according to their original terms, and are considered a risk to the banks' financial stability. The high level of NPLs in Nigeria is a concern because it can lead to:

  1. Reduced lending capacity: Banks may become more cautious in lending, which can slow down economic growth.
  2. Increased risk of default: The risk of default by borrowers increases, which can lead to further losses for banks.
  3. Reduced profitability: Banks may need to set aside more provisions for bad debts, which can reduce their profitability.

The main causes of NPLs in Nigeria include:

  1. Economic downturn: The country's economy has been experiencing a slowdown in recent years, which has affected the ability of borrowers to repay their loans.
  2. Poor credit risk assessment: Banks may not have conducted thorough credit risk assessments, leading to lending to borrowers who are unable to repay their loans.
  3. Corruption: Corruption and lack of transparency in the banking sector can lead to fraudulent activities, such as loan diversion or misappropriation of funds.
  4. Lack of effective debt recovery mechanisms: The process of recovering debts from defaulting borrowers can be slow and ineffective, leading to a buildup of NPLs.

To address the issue of NPLs, the Central Bank of Nigeria (CBN) has implemented several measures, including:

  1. Strengthening credit risk assessment: Banks are required to conduct thorough credit risk assessments before lending to borrowers.
  2. Increasing provisioning: Banks are required to set aside more provisions for bad debts to ensure that they have sufficient funds to cover potential losses.
  3. Improving debt recovery mechanisms: The CBN has established a debt recovery agency to help banks recover debts from defaulting borrowers.
  4. Enhancing regulatory oversight: The CBN has increased its regulatory oversight of banks to ensure that they are complying with prudential guidelines and maintaining adequate capital buffers.

Overall, the high level of NPLs in Nigeria is a concern that requires a coordinated effort from the banking sector, regulatory authorities, and the government to address the underlying causes and implement effective solutions.