The Central Bank of Nigeria (CBN) Monday turned down the request by banks for amendment to prudential guidelines that require them to retain in their records and to fully provide for non performing loans (NPLs) for one year before write-off.
Rather, CBN, in a letter to the lenders, signed by Tokunbo Martins, in charge of banking supervision, granted a one-off forbearance, this year 2016, to write-off fully provided NPLs without waiting for the mandatory one year.
The action of the apex bank is expected to give relief to banks weighed down under regulatory headwinds and unfavourable business environment.
“The CBN acknowledges the request by banks to amend the requirements of S.3.21 (a) of the Prudential Guidelines, which mandate banks to retain in their records, fully provided Non-Performing Loans (NPLs) for a period of one year before write-off.
“The CBN has no intention to repeal the provision of the above mentioned section of the guidelines. In view of the current macro-economic challenges however, the CBN hereby grants a one-off forbearance, this year 2016, to banks, to write-off fully provided NPLs without waiting for the mandatory one year,” CBN says.
Some analysts said last night, that the action would speed up the recovery of the banking sector, particularly with recent FX adjustment, and is a positive step that should allow the banks to be able to resume new lending, sooner than might otherwise have been the case.
They also see it as a demonstration of responsiveness to the yearnings of the banks faced with current macro-economic challenges, which had resulted among others, in poor outing in their first half financials.
“Given the recent NGN depreciation as the economy adjusts to a more flexible regime, it is prudent to consider the impact of FX-denominated loans on bank capital. Hence the call for provisioning. However, the CBN also recognises that current economic challenges call for a carefully- calibrated countercyclical approach.
“This likely explains the granting of the one-off forbearance, where banks will be allowed to write off any fully-provided NPLs, without waiting a full year before the write-off, as is mandatory.
“This should speed up the recovery of the Nigerian banking sector, once the current FX adjustment has run its course. It is a positive step that should allow the banks to be able to resume new lending, sooner than might otherwise have been the case,” says Razia Khan of Standaed Chartered Bank, London.
The NPL ratio for the banking industry is put at 10.1 percent, which is far above the prudential limit of five per cent.
The regulator had previously observed that the oil and gas companies are indebted to banks to the tune of about N3.673 trillion. A breakdown of the indebtedness shows that oil and gas firms’ aggregate credit stood at N2.153 trillion as at March 2015, compared to N2.3 trillion in February 2015 and N2.047 trillion as at December 2014.
Martins had at the 326th meeting of the Bankers’ Committee held recently in Lagos, attributed the rising non-performing loans to the current economic headwinds.
Speaking at the meeting, she said, “If people are not being paid their salaries and are thus unable to pay their loans, it is not unexpected. If corporate bodies are not doing well as they used to and are not able to pay their loans, it is not surprising that non-performing loans are rising. The average figure of five percent non-performing loan is not out of this world.
“On the other hand, it is not really that we are resting on our laurels, the bankers’ committee did discuss it. We spoke about such things as debt factoring. This is not something that has been done yet, but there were some discussions about it”, she said while responding to questions from journalists.
