Despite an increase in the non-performing loans in the banking industry, bank assets, credits and deposits have continued to be strong with good records of growth, the Monetary Policy Committee (MPC) said yesterday while giving Nigerian banks a clean bill of health.
The MPC said liquidity ratio (LR) remains above the minimum prudential guidelines.
The Committee revealed that year-on-year, non-performing loans (NPLs) in the banking industry improved to 6.1per cent as at January this year compared to 6.5 per cent recorded in January 2020.
Stating that the level of the NPLs should remain under consideration to ensure that banks continue to maintain a low level of NPLs, members also told OUR TIMES that the capital adequacy ratio (CAR) alongside the NPL had been declining.
A member of the MPC, Professor Adenikinju Festus, noted that the Financial Soundness Indicators (FSI) remain strong, although there is a slight deterioration in the CAR and the NPLs ratio.
According to him, the CAR declined from 15.5 percent in October 2020 to 15.1 percent in December 2020.
“Similarly, NPLs ratio rose from 5.7 percent in October 2020 to 6.0 percent in December 2020.”
He furthered that the various stress tests confirmed that the financial system is consistently strong as both the Return on Equity and Return on Assets increased from their levels as at the November 2020 meeting.
However, he said there was the need for robust oversight on the financial sector, as he urged that the Central Bank of Nigeria (CBN) “use all tools necessary to ensure that current forbearance granted to bank customers are not withdrawn prematurely.”
As part of policy measures to help mitigate the impact of the COVID-19 pandemic on the Nigerian economy, the CBN had last year approved regulatory forbearance for the restructuring of loans, granting a moratorium of one year on the repayment of loans.
Likewise, CBN deputy governor, Financial System Stability, Aisha Ahmad noted that there was the need to continue monitoring restructured and unrestructured industry loan portfolios, sustain dynamic stress testing and ensure banks build operational resilience by strengthening their cyber defenses and business continuity planning.
While noting the rising level of NPLs in the Nigerian financial industry, she assured that it remained reasonably contained and within tolerable levels, in view of the significant economic downturn in 2020.
“Banking industry liquidity ratio improved markedly between October and December 2020 from 35.6 percent to 44.5 percent, through the bank’s provision of backstops via the CBN Special Bills, whilst capital adequacy ratio (15.1 percent as at December 2020), return on asset and return on equity remained stable. Strong growth recorded in deposits, total assets, and funding over the period also solidifies the banking industry’s capacity to support the real economy through to recovery.
“Notwithstanding the positive outlook, the bank must remain vigilant given the uncertain macro environment and continue to monitor risks and vulnerabilities in the economy and their impact on financial system stability.
“ In this respect, it should be noted that consolidating the industry’s earnings profile will also be critical to grow capital buffers which will be important to enable it to manage likely financial and macroeconomic headwinds.”
Analysts noted that the current level of the NPL despite the economic headwinds instituted by the COVID-19 pandemic had been moderated by the several policies of the CBN as well as the Global Standing instruction which took off last year.
NPL level is expected to pull back this year as the economy returns to the path of recovery after fourth-quarter gross domestic product showed that the country is out of recession.