Banks risk billions in profits over CBN directives on NPLs

Commercial banks in the country risk losing billions in profit following the directives from the Central Bank of Nigeria (CBN), suspending all interests on the N777bn non-performing loans to oil marketers.

National Daily gathered that the move by the CBN was informed by the worsening portfolio of non-performing loans to oil marketers in the country, more so, many of the contractors and investors in the sector had largely depended on bank loans to manage their operations, with many defaulting to pay up.

Confirming the development, the Managing Director of SunTrust Bank Limited, Ayo Babatunde disclosed that there was a 100% suspension of income on the oil marketers’ loans by banks.

Babatunde reportedly said this while speaking at a seminar organised by the Money Market Workgroup of Financial Market Dealers Association (FMDA) in Lagos.

According to the director, CBN might have taken the action to ensure that banks did not report paper profits on NPLs.

A look into the NPLs data as released by the National Bureau of Statistics shows that the total NPLs stood N1.69 trillion as of April 2019. Considering the total gross loans of N15.4 trillion, it means that non-performing loans constitute 10.83% of total gross loans.

The breakdown shows that as of April ending, Nigeria’s oil and gas sector accounted for over 60%. Specifically, the NPLs accrued to Nigeria’s oil and gas sector was estimated at N777.84 billion.

A closer look at the data reveals that the non-performing loans in the oil sector declined by 93.3 billion as at the end of April 2019.

The directive from the CBN to freeze all the interests banks get from the non-performing loans offered to oil markers means NPLs are now a big source of concern to the economy.

The CBN may be planning to clamp down on banks that have shady deals surrounding the issue of the non-performing loan which has continued to linger.

This is a move by the CBN to consolidate its move to redirect loan facilities to the real sector. Also, this may be a coordinated move to stop accumulated interests, and clamp down on the debtors to recover loans for the banks.