With stability in the Nigerian economy following ease in Covid-19 lockdown, some banks Non-Performing Loans Ratio (NPL) dropped in half year ended June 30, 2021, leading to the reduction of provision for bad loans (Impairment losses on financial instruments losses) by the banks.

The Governor, Central Bank of Nigeria (CBN), Godwin Emefiele had at the Monetary Policy Committee (MPC) in July disclosed that the sector's NPLs was at 5.70 per cent in June 2021 compared with 6.4 per cent in June 2020.

He urged the banks to sustain its tight prudential regime to bring NPLs below the five per cent provident benchmark.

Analysis of the results bank's released to the Nigerian Exchange Limited (NGX) showed that while some banks have reduced their NPLs others only recorded marginal increase.

For instance, Union Bank of Nigeria Plc recorded marginal increase in NPLs ratio in the period under review, while Wema bank Plc record significant drop in its NPL ratio in the period.

However, ETI Nigeria and FBN Holdings are the only two banks with NPL ratio above the regulatory threshold in H1 2021.

As reported in the H1 2021 unaudited results, ETI Nigeria's NPLs dropped to 17.per cent from 19.90 per cent recorded in H1 2020, while FBN Holdings reported 7.20 per cent NPL/Gross Loans from 8.80 per cent recorded in H1 2020.

The Group Managing Director, FBN Holdings, U.K. Eke had while commenting on the bank's H1 results said the macro and socio-economic conditions remain challenging given the COVID-19 pandemic and the low-interest rates environment.

He said the financial institution remains committed to its strategic objective of driving further stability in performance, as well as delivering sustainable growth over the years to come.

Further findings revealed that Wema Bank Plc's NPLs closed H1 2021 at 3.50 per cent from 5.60 per cent in H1 2020 just as Sterling Bank's NPLs declined from 1.90 per cent in H1 2020 to 1.79 per cent in H1 2021.

In addition, FCMB Group NPLs declined from 3.50 per cent in H1 2020 to 3.30 per cent in H1 2021, while Union Bank of Nigeria's NPL ratio increased to 4.30 per cent in H1 2021 from 4.00 per cent recorded in H1 2020.

Further analysis of the results showed a 13.4 per cent increase in FCMB Group NPLs to N3.78 billion in H1 2021 from N2.55 billion, dragging the financial institution NPLs by value to N32.21 billion in H1 2021 from N29.77 billion recorded in H1 2020.

Analysts attributed banks decline in some bank's NPLs to ease of COVID-19 lockdown, effective management of credit risk and reduction of risk to some sectors.

Further checks by THISDAY revealed that FBN Holdings in H1 2021 reported 20 per cent drop in Impairment charge for losses to N24.5 billion in H1 2021 from N30.7 billion reported in H1 2020, while FCMB group Impairment losses on financial instruments dropped by 48 per cent to N4 billion in H1 2021 from N7.74 billion reported in H1 2020.

On its part, Union Bank of Nigeria Plc also reported N153 million net impairment charge for credit losses in H1 2021 from N4.24 billion reported in H1 2020.

Commenting on the decline in some banks' NPLs, the Vice President, High cap Securities, Mr. David Adonri, said the decline is a welcome development, stressing that ease of lockdown that led to economy stability aided the decline.

According to him, "The global economy was battered by COVID-19, leading to some borrowers unable to pay back their loans. More businesses are gathering momentum and these businesses are earning more income and paying back their loans.

"If NPL is reducing, it means that impairment of their assets will decline because their assets will not suffer losses as what they have recovered will add to the strength of their asset whereby reducing impairment. It is good news for the banking sector."

Analyst at PAC Holdings, Mr. Wole Adeyeye however saw the development from a different perspective, he noted that banks are monitoring loans granted to their customers.

He maintained that banks have strengthened their Know-Your-Customers (KYC) policy of the CBN adding that this has aided bad loan recovery.

In his words: "The sector NPLs is expected to reduce as a lot of banks are not meeting the 65 per cent Loan-to-Deposit Ratio policy of the CBN in a move to reduce NPLs. Banks are watching their loans closely and it has contributed to decline in NPL and impairment losses significantly. They are also following the kind of customers they grant loans to.

"Some banks are targeting salary earnings since they know they will be getting their money bank. All these are factors we need to consider when lending to individuals. Mind you, some banks are not exposing themselves to some sectors with high risk."

He maintained that banks were effective in managing the 65 per cent Loan-to-Deposit Ratio (LDR) policy of the CBN revealing that most banks failed to meet the threshold.

"With the 65 per cent LDR policy of the CBN, banks were clever granting loans to some sectors and new customers. Banks are not exposed to the Oil & gas sector unlike what we had in 2016 & 2017, "he said.

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