H1: Banks’ Average NPL Ratio Maintains Downward Slide Despite Inflation, Interest Rate

Kayode Tokede

As against the prediction by leading ratings agency, Fitch that Nigerian banks’ Non-Performing Loan (NPL) will increase in 2024, a total of 10 leading banks beat the odds in the first half of the years closing the period with an average 7.49 per cent NPL as against 7.53 per cent in 2023 full financial year.

Analysis of the banks’ half year ended June 2024 released to the Nigerian Exchange Limited (NGX), showed that the banks effectively managed their loans to customers amid double-digit inflation rate, insecurity in the country, unstable naira at the foreign exchange market, among other challenges. 

The banks are: FBN Holdings Plc, Zenith Bank Plc, Guaranty Trust Holdings Plc (GTCO), FBN Holdings Plc, United Bank for Africa Plc (UBA) and Access Holdings Plc.  Others include; Fidelity Bank Plc, FCMB Group Plc, Stanbic IBTC Holdings Plc, and Wema Bank Plc. 

Nigeria’s inflation rate rose to 34.19 per cent in June 2024 (currently at 32.70per cent in September 2024), from 22.79per dent reported by National Bureau of Statistics (NBS) June 2023, driven by higher petrol prices that pushed up transport costs.

The hike in inflation rate has seen the Central Bank of Nigeria (CBN) under Mr. Yemi Cardoso raise the monetary policy rate (MPR) five times in an effort to curb the menace and promote economic stability. The first increase moved the rate from 18.75 per cent to 22.75 per cent, followed by subsequent hikes to 24.75 per cent, 26.25 per cent, and 26.75 per cent, with the most recent adjustment in September 2024 when the Monetary Policy Committee (MPC) raised it by 50 basis points to 27.25 per cent. 

Further investigation by THISDAY revealed that UBA with NPL ratio at 6.20 per cent in H1 2024 from 5.80 per cent in H1 2023 is the only big financial institution with NPL ratio above regulatory requirement, as all others reported NPL ratio below five per cent requirement of Central Bank of Nigeria (CBN).

The management of UBA explained that its NPL slipped to 6.2 per cent in H1 2024 on account of further classification of some exposures.

“However, the portfolio remains resilient as we continue to monitor it,” it added.

Access Holdings, according to an investigation by THISDAY, is the only financial institution with the lowest NPL ratio among the 10 banks.

Access Holdings saw its NPL ratio dropped from 2.80 per cent in 2023 FY to 2.70 per cent, while its NPL coverage dropped from 134.6 per cent in 2023 to 133.9 per cent as of June 2024, as the management stated that the decline is in line with its strategy of maintaining a healthy coverage for the loan portfolio.

Despite the decline in NPL ratio, the Pan-African financial institution saw its NPL by value at N341 billion in H1 2024 from N252 billion reported in 2023.

GTCO in a presentation to analysts and investors had disclosed that, “The Group’s IFRS 9 Stage 3 loans closed at 4.3per cent (Bank: 2.8per cent) in H1 2024 from 4.2per cent (Bank: 2.5per cent) in FY-2023. Education and Others emerged as sectors with the highest NPLs i.e., 44.6per cent and 19.1per cent, respectively.

“IFRS 9 Stage 3 loans grew to N143.4billion in H1 2024 from N109.6billion in 2023, primarily due to exchange rate impact as there was no new addition to the NPL portfolio. Group continued to deleverage in Nigeria, Ghana, and Kenya, and where possible, ensured derecognition of fully provided facilities off its loan book.

“The Group continued to benefit from the precautionary impairment charge booked in 2023 by way of management overlay causing improvement in Cost-of Risk to 1.6 per cent in H1 2024 from 4.5 per cent in FY-2023.

“IFRS 9 balance sheet impairment allowance for Stage 3/lifetime credit impaired exposures therefore closed at N82.6billion from N63.5billion in 2023 representing 57.6 per cent coverage of 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 229.9 per cent from 191.1per cent in 2023. The coverage for Stage 3 Loans is deemed to be adequate and consistent with the Group’s plan to maintain 100 per cent coverage for its NPLs.”

Also, Tier-1 bank Zenith Bank declared 4.50 per cent NPL ratio in H1 2024 from 4.40 per cent in 2023, while FBN Holdings announced 4.20 per cent NPL ratio in H1 2024 from 4.70 per cent in 2023. 

Fitch in its latest report on Nigeria projected that NPLs of Nigerian banks will increase in 2024 on the back of high interest rates and inflation in the country.

According to the firm, the loan books of the banking sector at 35 per cent of assets in the sector by the end of 2023 are low.

It stated, “Fitch expects the banking sector’s regulatory non-performing loans (end-1Q24: 5.1 per cent) to increase in 2024 due to high inflation and interest rates. However, loan books are small (end-2023: 35per cent of banking sector assets).” 

Members of the Monetary Policy Committee (MPC) of the CBN, Bala Moh’d Bello who is the Director-General, Corporate Services in his personal statement, had maintained Banking system data presented at the July 2024 meeting, showed stability in broad financial soundness indicators and sustained improvement in asset quality.

“Of particular interest is the NPLs ratio, which declined further to 3.9 per cent in June 2024, compared with 4.8 per cent in April 2024. This reflects improvement in industry risk management practices and implementation of regulatory policies to manage NPLs, such as the Global Standing Instruction policy.

“Also, the results of stress tests conducted by staff showed that financial soundness indicators remained above minimum regulatory thresholds under mild to severe shocks. Nonetheless, the Bank must remain vigilant and proactively manage any operational, asset quality and other risks to financial system stability.”