Dormant loans hit N1.2tn as experts differ on plans to debit defaulters

Non Performing Loans (NPLs) have risen to N1.2 trillion as of June 2020, with a N721.3 billion increase since 2015, statistics have shown.

This is just as experts in the financial sector differ on the prospects of a new policy being considered for creditors to debit loan defaulters to repay loans.

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Daily Trust’s analysis of figures from the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS), shows that these loans otherwise known as dormant loans rose from N478.71bn, being 3.81 percent of the total loans of N12.57tn in the first quarter of 2015 to N1.2tn (6.4%) of the N18.9tn bank loans by the second quarter of 2020.

The latest CBN data showed that banks’ dormant loans stood at N1.2tn as of the end of June, being 6.4 per cent of the N18.9tn total loans of the banks to the economy.

The education sector recorded the highest year-on-year increase in nonperforming loans from 2018 to 2019.

The dormant education loans grew by N34.53bn, or 125% in 2018, from N3.90bn as at 2018 to N8.79bn as at 2019.

The oil and gas sector recorded 75% or N658.94bn drop in nonperforming loans in 2019, from N878.41bn as at 2018 to N219.47bn.

The construction sector recorded N34.53bn or 66.57% increase in nonperforming loans from N51.87bn as at the end of 2018 to N86.40bn by the end of 2019.

Similarly, the agricultural sector recorded an increase of N15.23bn or 41.93 per cent in 2019 in terms of nonperforming loans from N36.32bn as at the end of 2018 to N51.55bn as at the end of 2019.

To enhance loan recovery processes across banks in Nigeria, the Central Bank of Nigeria (CBN) recently issued the Guidelines on Global Standing Instruction (GSI) – Individuals.

The GSI contains notable provisions on the obligations of a borrower to execute a GSI mandate permitting a creditor bank to debit any of its banks account in Nigeria, in repayment of the loan facility availed by the borrower.

But experts have varied views on how this could help the loans recovery drive of the Federal Government. Dr. Bongo Adi, a lecturer at Lagos Business School, Lagos, said driving down NPLs will be difficult because of the bank’s high risk operating environment which has been worsened by COVID-19.

“Look at the interest rate which is above 20 percent, sometimes as high as 30 percent. You may have also noticed that credit to the private sector at some point was negative so the CBN had to embark on draconian policies to get banks to start lending to the private sector.”

He noted that “one of the signals to financial distress is when NPLs begin to rise so that is a signal that we are heading to some problem. Perhaps that is why the CBN is trying to balance the situation by GSI. We don’t have the right environment and infrastructure so the NPLs will continue to rise,” he said.

To reduce NPLs, he said the government has to invest in critical infrastructure.

Professor Uche Uwalake of the Banking and Finance Department of Nasarawa State University and the Chairman of The Chartered Institute of Bankers of Nigeria, Abuja chapter, said GIS was meant to build confidence in the banking sector by improving asset quality through the reduction of dormant loans.

He canvassed for a special court to entertain issues with banking breaches to reduce cases of dormant loans and boost confidence level.