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CBN signals end to forbearance despite Bad Banking loans rising above regulatory limits

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The Central Bank of Nigeria’s Monetary Policy Committee has revealed that the average non-performing loans ratio for Nigerian banks is above the regulatory limits of 5% as of October 2021, a sign that banks still carry bad loans above what is allowed.

The revelation was made in the monetary policy communique of the apex bank read out by the CBN Governor, Godwin Emefiele on Tuesday, November 23rd, 2021. According to the Governor, NPL is currently 5.3% for the month of October 2021.

“The MPC noted that the Capital Adequacy Ratio (CAR) and Liquidity Ratio (LR) both remained above their prudential limits at 15.2 and 41.2 percent, respectively. The Non-Performing Loan ratio (NPL) at 5.3 percent in October 2021, reflected progressive improvement, compared with 5.7 percent in October 2020. The Committee, however, urged the Bank to sustain its tight prudential regime to bring the Non-Performing Loan (NPL) ratio below the 5.0 percent prudential benchmark.”

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What this means

Banks are still struggling to recover from the bad loans experienced due to the economic challenges brought by Covid-19. Recall, the CBN had provided regulatory forbearance for some commercial banks giving them a softer treatment for loans that are not performing.

  • However, it appears some of the loans remain unpaid as companies struggle to generate enough cash flows to pay down their debts. Nairametrics estimates over N89.7 billion in loans have been impaired by 10 of tier 1 and tier 2 banks in the first half of 2021.
  • The banks include FUGAZ and SUFFS (Stanbic, Union Bank, Fidelity, FCMB, and Sterling Bank).
  • Despite the challenges, the CBN commended itself for maintaining stability in the banking system in the wake of the covid-19 induced economic crisis.
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“The MPC welcomed the continued resilience of the banking system in the face of severe shocks to both the domestic and global economies, commending the Bank’s Management for maintaining overall stability in the banking system.”

Read: First Bank is too big to fail, CBN is happy with investors’ tussle for share ownership – Emefiele

On Regulatory Forbearance

The CBN’s forbearance for banks is set to expire in March 2022 some of which included allowing banks to restructure facilities into a longer tenure, reduction in CBN intervention loans from 9% to 5%.

  • The CBN Governor maintained that even though the global economy is opening-up and “believe that companies are back to business and that revenues have improved” and so expects companies to pay back their loans if the forbearance should expire in March.
  • Emefiele also insists he did not see any cause for worry if the forbearance is made to expire highlighting the fact that NPLs are improving having dropped from 9% two years ago to 5.3% currently.
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