Eleven Banks’ Loan Impairment Charges Soar by 248.3% to N828.87bn

Kayode Tokede

Guaranty Trust Holding Company (GTCO) Plc and 10 other Banks’ provision for loan losses grew significantly to N828.3billion in the nine months ended September 30, 2023, representing an increase of 248.3 per cent from N238 reported in corresponding nine months of 2022. 

This is according to the unaudited results and accounts released by financial institutions to the Nigerian Exchange Limited (NGX).

Provision for loan losses or Impairment charges is the writing off of worthless goodwill and it refers to assets that are no longer of the same value as they were in a prior period.

The other 10 banks include: FBN Holdings Plc, Access Holding Plc, United Bank for Africa Plc (UBA), Zenith Bank Plc, and Ecobank.

Others are: Fidelity Bank Plc, FCMB Group Plc, Wema bank Plc, Stanbic IBTC Holdings Plc and Sterling Financial Holdings Company Plc.

Despite declaring impressive profits, the investigated banks loan losses grew significantly in the period review.

For instance, GTCO declared N89.46billion loan impairment charges in nine months of 2023, an increase of 2318 per cent from N3.7billion reported in nine months of 2022.

A breakdown of the group’s loan impairment revealed that GTBank Nigeria incurred 96.19 per cent or N86.054 billion of the N89.46 billion charges.

Other subsidiaries which recorded loan impairment charges were GTBank Ghana, N861.23 million; GBank Sierra Leone, N560.54 million; GBank Liberia, N2.14 billion; GTBank Gambia, N80.85 million; GT Bank Cote D’Ivoire, N4.21 million; and GTBank Tanzania, N27.15 million.

Meanwhile, a N265.93 million loan impairment gain reported by GTBank Kenya Group brought the loan impairment charges to N89.46 billion.

GTCO in half year ended June 30, 2023 said it booked loan impairment charges of N82.96 billion in from N3.51 billion in half year ended June 30,2022 due to weakening macro economic variables driving the predictive EC model and caused management overlay on stage 2 facilities as permitted under IFRS 9 in line with its conservative posture of building up credit risk reserves to deal with adverse situations.

“The Group also recognised N81.3billion in H1 2023 as impairment charge on other Financial Assets (FA) also by way of management overlay as loss rate heightened on its investment in Ghanaian sovereign securities and other foreign currency financial instruments whose underlying values are sensitive to adverse exchange rate movement,” as the management explained in a presentation to investors and analysts.

According to THISDAY investigation, UBA came second by percentage increase in loan impairment charges in nine months of 2023, reporting N144.62billion, an increase of 964.37 per cent from N13.59billion reported in nine months of 2022, followed by Fidelity Bank that announced N32.18billion loan impairment charges in nine months of 2023, a growth of 771.9per cent from N3.69billion reported in nine months of 2022.

In the period under review, Zenith Bank reported N209.99billion loan impairment charges, representing a 466 per cent increase from N37.1billion in nine months of 2022.

In addition to top five banks with highest percentage loan impairment charges in nine months of 2023 is FCMB group that declared N56.99billion loan impairment charges in nine months of 2023, an increase of 204.68 per cent from N18.7billion in nine months of 2022.

According to a report by Fitch, a global credit rating agency, Nigerian banks’ impaired loans are expected to surge on the fallout of the exchange rate reform of President Bola Tinubu.

The rating agency stated, “Nigerian banks face weaker capital ratios and higher impaired loans following reforms to liberalise the Nigerian naira and to remove the long-standing subsidy on fuel.

“The official exchange rate depreciated sharply in June following the Central Bank of Nigeria (CBN)’s decision to allow the naira to trade at a market-determined rate as part of the reforms under Nigeria’s new government. The official rate has depreciated by over 40 per cent since end-2022.”

The CBN had said it would from July 31 begin enforcement of the 65 per cent Loan-to-Deposit Ratio (LDR) policy on banks flouting its directive.

The apex bank had set the LDR policy to improve lending to customers to stimulate the real sector of the economy with the directive that for every N100 received as deposits, the banks are to lend N65 to customers.

The drawback in the impairment charge for credit losses on loans points to the hard times faced by the banks, forcing them to put aside much of their revenue to cover potential losses.

Commenting, the Chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion, explained that banks were making huge provisions for impairment amid economic uncertainties.

“Banks with significant increase in loan books are expected to make provision for loan losses. If a bank has a negative assumption of the macro-economy, it is expected to make provisions for loan losses,” he told THISDAY in a telephone interview.

According to Vice President, Highcap Securities Limited, Mr. David Adnori, financial institutions had recorded a significant increase in loan loss impairment due to the 2024 domestic and foreign macro economic uncertainty, stressing that these banks have to make more provision over uncertainty policies of the CBN.