10 Banks’ NPLs Hit N1.6tn as Lenders Write-off Billions to De-risk Balance Sheet

Kayode Tokede

As several companies across all strata of the Nigerian economy continues to struggle as a result of tough operating clime, it has emerged that the manufacturing, oil & gas and commerce sectors contributed majority of Nigeria’s top 10 banks’ estimated N1.6 trillion Non-Performing Loans (NPL) in the 2023 financial year.

The 10 banks include: FBN Holdings Plc, Zenith Bank Plc, Access Holdings Plc, United Bank for Africa (UBA) Plc, and Guaranty Trust Holdings Company Plc (GTCO).

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

THISDAY analysis of the 10 banks’ financial results showed that cumulatively, their NPLs went up by 65 per cent from N964.36 billion in the 2022 to N1.6 trillion in 2023.

Consequently, the lenders wrote of multi-billion naira non-performing loans to de-risk their balance sheet and improve asset quality.

Specifically, weak crude oil prices impacted the oil & gas sector negatively, while the manufacturing sector was faced with high cost of operation, foreign exchange losses amid Central Bank of Nigeria (CBN) policy on foreign exchange market, and weak purchasing power by consumers.

Other sectors were faced with a hike in inflation rate across Sub-Saharan Africa. Inflation rate was persistently on increase throughout 2023, mainly driven by high food prices, a weak local currency, and rising cost of inputs.

Brent crude oil price averaged $83 per barrel in 2023, down from $101 per barrel in 2022, as global markets adjusted to new trade dynamics, with crude oil from Russia finding destinations outside the European Union, and lower than expected demand.

Analysts believe the increase in banks NPL is a reflection of movements in expected macroeconomic conditions, stressing that most banks restructured their loans in the year under review.

A member of the CBN’s Monetary Policy Committee (MPC), Philip Ikeazor, in his personal statement at the meeting in March 2024, said, “The imbalance between the exposure of the oil and manufacturing sectors and their poor contribution to growth is worrisome, even as NPLs continue to rise. Considering their vulnerability to rate hikes, consecutive aggressive tightening will further depress the economy. The pressure point is already manifesting as indicated in the projected contraction of PMI in the industrial sector by 7.1 index points occasioned by rising input cost and low-capacity utilization.”

Despite these challenges, THISDAY gathered that the 10 banks’ gross loans to customers in 2023 stood at an estimated N39.25 trillion, about 55 per cent increase from N25.3 trillion in the 2022 financial year.

THISDAY gathered that only two banks, UBA Plc and Sterling Financial Holdings Company, have an NPL ratio of above 5 per cent.

A breakdown showed that in 2023, UBA’s NPL ratio stood at 5.85 per cent from 2.95 per cent in 2022, while Sterling Financial Holdings Company reported 5.07 per cent NPL ratio in 2023 from 3.90 per cent in 2022.

The likes of FBN Holdings, 4.70 per cent, Zenith Bank, 4.40 per cent, Access Holdings, 2.80 per cent and GTCO, 4.19 per cent recorded NPL ratio below the CBN’s 5 per cent threshold.

A report sighted by THISDAY revealed that oil & gas contributed about 30 per cent to Zenith Bank’s N310.65 billion NPL in 2023 from 44.37 per cent in 2022 when its NPL was at N177.3 billion.

GTCO’s recorded 31 per cent upstream oil & gas contribution to its NPL in 2023 financial year, followed by 18 per cent manufacturing sector.

Zenith Bank in a presentation to analysts and investors stated that it adopted a holistic and integrated approach to risk management and therefore, brings all risks together under one or a limited number of oversight functions.

According to the bank, risk management is practiced as a shared responsibility; “thus, the group aims to build a shared perspective on risks that is grounded in consensus.”

“The process is governed by well-defined policies that are subjected to continuous review and are clearly communicated across the Group and risk related issues are taken into consideration in all business decisions,” the group added.

For GTCO, the bank said, ‘The Group’s IFRS 9 Stage 3 loans closed at 4.2peer cent (Bank: 2.5per cent) in 2023 improving from 5.2 per cent (Bank: 4.7per cent) position in 2022.  Education and Others emerged as sectors with the highest NPLs i.e., 20.9per cent and 18.0per cent, respectively.

“IFRS 9 Stage 3 loans grew marginally to N109.6billion in 2023 from N102.4billion in 2022, primarily driven by exchange rate impact as the Group continued to deleverage in Nigeria, Ghana, and Kenya, and where possible, ensured derecognition of fully provided facilities off its loan book.

“The Group wrote off the sum of N129.1 billion in 2023, to de-risk its balance sheet and improve asset quality, positioning the group for recovery of delinquent facilities to bolster future earnings.

“On the back of the increased precautionary impairment charge booked by the group occasioned by way of management overlay led to pick up in Cost-of Risk to 4.5 per cent in 2023 from 0.6 per cent in 2022.

“IFRS 9 balance sheet impairment allowance for Stage 3/lifetime credit impaired exposures closed at N63.5 billion from N54.9billion in 2022, representing 57.9 per cent coverage for loans in this classification.

“In aggregate terms including regulatory risk reserves of N75.1billion, the group’s coverage for its IFRS 9 Stage 3 loans/NPLs improved to 191.1 per cent from 175.5 per cent in 2022. The coverage is not only adequate, but it is also consistent with the Group’s plan to maintain 100 per cent coverage for its NPLs.”

On its part, Wema Bank’s NPL ratio dropped to 4.31 per cent from 6.08 per cent in 2022, while Stanbic IBTC Holdings Company declared 2.35 per cent NPL ratio in 2023 from 2.38 per cent in 2022.

While FCMB Group announced 4.33 per cent NPL ratio from 3.97 per cent in 2022, Fidelity Bank declared 3.50 per cent NPL ratio in 2023 from 2.90 per cent in 2022.

Commenting on some banks’ NPL performance in 2023, the Vice President, High cap Securities, Mr. David Adonri, said the decline in majority of the banks’ is a welcome development, stressing that banks’ management are becoming more prudent in lending to the real sector.