The heterodox policies of the Central Bank of Nigeria (CBN) have started to yield some desired results in the nation’s financial sector. This could be seen in the downward movement of the non-performing loan to gross loans ratio in the last three years. Apart from the ratio which is now about 6.21 percent, the gradual reduction in the nation’s non-performing loans (NPLs) has increased injections into the economy by additional N558.54 billion.
With NPL at N1.79 trillion in Q4 2018, conscientious efforts by financial institutions reduced it to N1.67 trillion in Q1 2019, and that implied that the Nigerian economy benefited from the additional injection of N116 billion. NPL portfolio was further reduced to N1.44 trillion, representing the injection of N231.15 billion in Q2 2019.
Out of the eight quarters in 2019 and 2020, the reduction was sustained for five quarters during which N558.55 billion from the NPL was recovered from the total NPL and injected into the Nigerian economy.
Consequently, the NPL to gross loans ratio which averaged 14.90 percent in 2017, fell to 13.03 percent in 2018, and to 8.21 percent in 2019 before it declined to an annual average of 6.21 percent in 2020.
While the NPL is on the decline, the gross loans in 2020 on the other hand maintained an upward trajectory, meaning that despite the pandemic, more loans were granted to businesses operating in the Nigerian economy. Specifically in 2020, gross loans rose from N18.56 trillion in Q1, to N18.89 trillion in Q2, and to N19.45 trillion in Q3, and again to N20.48 trillion in Q4 2020. Put differently, gross loans averaged N19.35 trillion in 2020, as against N16.30 trillion in 2019; N15.65 trillion in 2018, and N16.02 trillion in 2017.
“This improvement was due to the CBN’s continued deployment of heterodox policies to ensure that NPLs fall below the prudential benchmark of 5.0 percent. The introduction of Bank Verification Number (BVN), which helped to consolidate multiple individual and corporate accounts, has made it difficult for customers to hide funds within the Nigerian banking system. As a result, and for some chronic credit defaulters, it has become easy to fish out their debts in other bank accounts. This is the magic of ground-breaking BVN”, the CBN said it its 2020 Update.
On a quarterly basis, the latest data on credit and deposits from Nigeria’s databank, the National Bureau of Statistics (NBS) has shown that Nigeria’s non-performing loans fell to N1.23 trillion in the last quarter of 2020, and when compared with the country’s gross loans at N20.48 trillion, the NPL ratio was 6.02 percent in Q4 2020. That was almost the same as the 6.01 percent in Q3 2020, but a sharp decline when compared to 6.41 percent in Q2 2020 and 6.39 percent in Q1 2020.
The declining trend in 2020 was possible as a result of the progress made in 2019. In Q1 2019, the NPL ratio was 10.79 percent. That was a better result compared to 11.67 percent in the last quarter of 2018. NPL ratio was further reduced to 9.33 percent in Q2 2019; 6.67 percent in Q3 2019, and 6.03 percent in Q4 2019.
From the above, it implies that on the average, 8.21 percent of the gross loans in 2019 were regarded as NPL whereas the ratio was 6.21 percent for 2020. Also, the highest NPL to gross loans ratio in 2019 was 10.79 percent in the first quarter unlike in 2020 when the highest NPL to gross loans ratio was 6.41 percent in the second quarter.
Concentration of NPLs
Seventy-three percent of the country’s non-performing loans are concentrated in five sectors as at December 2020. These sectors are oil and gas, N315.38 billion; construction, N170.59 billion; general commerce, N156.02 billion; general loans, N139.22 billion, and information and communication, N112.11 billion.
As of December 2019, the aforementioned sectors had N683.66 as their total NPL representing 65 percent of the nation’s NPL as at then. In other words, in 2020, the NPL weight of the five aforementioned sectors relative to industry NPLs rose from 65 percent in 2019 to 73 percent in 2020. Among the five sectors, the construction sector recorded the highest growth in NPL. This is because as at December 2019, the total construction sector’s NPL was N86.40 billion, but that rose by 97.4 percent in twelve months to N170.59 billion as of December 2020.
Oil and gas NPL rose by 43.7 percent to N315.38 billion as of December 2020 compared to N219.47 billion as of December 2019. NPL in information and communication sub sector had a total NPL of N112.11 billion as of December 2020, representing an increase of 38.2 percent when compared to N81.10 billion as of December 2019. General commerce’s NPL was N156.02 billion, which translated to 7.4 percent growth when compared to N145.26 billion in 2019.
The odd one out among the five sub sectors with the highest concentration of NPLs is general loans which declined by 8.1 percent to N139.22 billion as of December 2020 down from N151.44 billion.
Sectors where NPLs reduced the most
There was no NPL in the public utilities sub sector as at the end of 2020. This is because businesses in that sub sectoral paid up all the N18.33 billion which was the total NPL as at the end of 2019. Consequently, the reduction in NPL in the public utilities sub sector was 100 percent. The mining and quarrying sub sector owed N100, 000 as NPL in 2019, so, it was no-brainer that banks were able to recover this last year.
Power and energy sub sector recorded 27.99 percent reduction in sectoral NPLs that fell from N46.13 billion in 2019 to N33.22 billion in 2020. This implies that businesses in that sector were able to pay up N12.91 billion from the total outstanding in 2020. Businesses in the transport and storage sub sector paid up N14.67 billion, representing 24.7 percent of N60.2 billion NPL in 2019. The total transport and storage NPL as of December 2020 was N45.53 billion.
The total NPL in the agriculture sector as of December 2020 was N39.53 billion. This was after the businesses in that sector paid N12.02 billion from the N51.55 billion NPL in 2019. And in spite of the pandemic which affected the education sector in 2020, educational institutions in the country paid N1.97 billion from the N8.79 billion NPL in 2019 to have N6.81 billion as of 2020.
Sectors where NPL increased the most
The NPL of the capital market rose by 487.49 percent from N54.66 million in 2019 to N321.11 million in 2020. Administrative and support service sub sector followed in terms of growth in NPL during the period. Its NPL rose by 397.71 percent to N5.65 billion in 2020 up from N1.13 billion in 2019. Construction sector’s NPL increased by 97.44 percent to N170.59 billion up from N86.40 billion.
While the current national NPL ratio is nothing to worry about, efforts should be made to bring down to the statutory level of 5 percent as instructed by the CBN.