… as investors call for aggressive loan recovery
Five top banks are presently battling to survive liquidity crisis as their exposure to nonperforming loans hit over N1 trillion in 2016, findings by The Point have revealed.
The banks are Unity Bank Plc, First City Monument Bank Plc, Zenith Bank Plc, Access Bank Plc and FBN Holdings.
Unity Bank’s NPL rose from N241billion in 2015 to N369 billion in 2016; Zenith Bank recorded N71.34billion as against N44.9billion in 2015; while Access Bank Plc incurred NPL worth N29 billion as against N24.5 billion in 2015.
In the same vein, FCMB recorded N30.69 billion non-performing loans in 2016, as against N7.17 billion reported in the corresponding period of 2015.
Unity Bank recorded the highest in this category, as its NPL ratio moved from 77 per cent to 97 per cent, followed by FBN Holdings Plc, with a loan ratio increase, from 18.1 per cent in 2015 to 24.4 per cent in 2016
In the case of FBN Holdings, its bad loans grew from N353.5 billion, recorded at the end of 2015, to N531.7billion in 2016.
Non-performing loans are those risk assets that are not generating income. They are often considered to be non-performing when principal or interest on them is due and left unpaid for 90 days or more.
The NPLs in some banks within the sector were also observed to have doubled the threshold limit set by the Central Bank of Nigeria as the industry struggles with an economic downturn.
Some of the affected banks include Stanbic IBTC, Diamond Bank Plc and Union Bank Plc, among others.
Findings revealed that the banks had violated the CBN’s five per cent NPL ratio threshold.
For instance, Unity Bank recorded the highest in this category, as its NPL ratio moved from 77 per cent to 97 per cent, followed by FBN Holdings Plc, with a loan ratio increase, from 18.1 per cent in 2015 to 24.4 per cent in 2016.
Union Bank recorded 6.9 per cent NPL, from 6.67 per cent in 2015. Stanbic IBTC’s NPL ratio closed 2016 at 6.4 per cent from 8.5 per cent in 2015, while Diamond Bank’s NPL ratio moved from 6.9 per cent in 2015 to 9.5 per cent in 2016.
For Zenith Bank, there was a sizeable impairment charge of N32.4billion on loan losses in 2016 as against N15.7billion NPL, which spiralled massively by 61 per cent to N71billion. It stood at N44billion in 2015, with the NPL ratio rising to about 3.02 per cent.
RAISE CAPITAL, AVOID TAKEOVER – EXPERTS
Managing Director, Agusto & Co, Ms. Vivian Shobo, warned that if the right steps were not taken, the aforementioned banks and others in the sector might face liquidity crisis.
According to her, the banks’ exposure to bad loans may double by the end of the 2017 financial year. “Loan losses will impair earning by up to 30 per cent.
The banks will need to raise capital, to buffer the capital eroded from loan losses,” she said.
She explained that inflation had also affected the operating cost of the financial institutions. “As a result, we are expecting higher cost to income ratios.
There will be liquidity constraints for some players due to the implementation of the Treasury Single Account, while other players with large retail networks will not be as affected as those with smaller branch networks,” she added.
Manager, Heritage Fund Limited, Mr. Vincent Akindele, explained that the problem of non-performing loans remained the most complicated challenge facing the sector.
Akindele expressed the belief that the problem might be tackled through the creation of a specialised institution on asset management.
He explained that such institution had a number of advantages, one of which was the aggregation of resources and creation of opportunities for more ordered restructuring of different sectors.
“The existence of non-performing loans in the portfolio of banks is an obstacle to adequate operations. Transfer of such loans to specialised agencies may allow banks to get rid of risky assets, clean up their balance sheets and properly implement crediting operations,” he said.
WHAT INVESTORS WANT
An investor, Mr. Nona Awoh, said commercial banks should embark on an aggressive loan recovery drive and de-risking of the business environment so as to reduce and address impairment losses in the future.
“Banks must make full disclosure of fraud statement or face customers’ wrath. They must protect the shareholders by driving down the unclaimed dividend from N1.8billion to zero and also ensure all loans are recovered to the barest minimum. Banks must also work assiduously in ensuring that their internal control systems are efficient,” he said.
Chairman, Shareholders Trustee Association, Alhaji Muktar Muktar, urged the banks to meet with the loan defaulters and re-negotiate the credit facilities given to them.
“It might not be the fault of the defaulters because we all know it was more challenging doing business in Nigeria in 2016 due to the difficult macro environment, foreign exchange scarcity and disruptions witnessed in oil production, which negatively impacted the refund of loans obtained by Oil and Gas companies. But banks must find a way to reduce the level of the NPL in their books,” Muktar noted
AILING REAL SECTOR RESPONSIBLE – BANKS
Managing Director, Unity Bank Plc, Mrs. Tomi Somefun, attributed the situation to huge loans owed by operators in the commerce, manufacturing and oil and gas sectors.
According to her, the new management of the bank inherited huge legacy Non-Performing Loans from the general commerce and manufacturing sectors.
Unity Bank was in 2016 sanctioned by CBN for violating three different contraventions worth N20 million as against N6.99 million recorded in 2015.
Also, the CBN penalised the bank for non-disclosure of excess funds and utilisation. The bank was initially granted forbearance by the CBN for compliance with the cash reserve ratio when it was set at 33 per cent.
In the first quarter of 2017, FBN Holding had already reported N624.5billion NPL. But more provisioning is expected in the year as it is only able to absorb 58.8 per cent of impaired credit.
FBN Holding is exposed to another N82.816billion foreign currency denominated loans, covering $65million borrowings from PROPARCO, and foreign correspondence banks, which repayments are due between 2018 and July 2019.
The implication is that the earnings per share capital, which measures average return on investment, will be further diluted with share price dropping to an all time low, leaving shareholders worse for it.
Group Managing Director, FBN Holdings, Mr. Urum Kalu Eke, said that, going forward, the provisioning for non-performing loans would be high, but not as in 2016, stressing that the bank had strengthened risk management and lowered its appetite for risks.
“FBN will not do any single credit transaction above N30billion. We expect an improved economic environment through 2017 and are confident that the foundations we have put in place will drive improved financial performance and consequently enhance shareholder returns,” Eke said.
Group Managing Director, Access Bank, Mr. Herbert Wigwe, said, “The bank’s lending grew by 32 per cent in 2016, far above its target for that year, due largely to devaluation of the naira, which drove up the local currency value of foreign loans.
The bank set a 10 per cent target last year for loan growth and would keep the same target for this year, while monitoring the level of bad loans.”
On his part, Managing Director, FCMB, Mr. Peter Obaseki, said, “We expect that loan impairments will remain elevated in the second half of the year but will be cushioned by continued momentum in revenues and efficiency gains from cost optimisation measures taken earlier in the year.”
