Nigeria: Improved Risk Management Reduces Banks' Impairment Charges

15 November 2019

Improved risk management and recovery strategies being adopted by banks have led to a significant decline in the provision for loan losses as indicated in the nine months results ended September 30, 2019.

THISDAY checks showed that the aggregate loan losses provision, otherwise known as impairment charges by 11 banks, declined by 39.2 per cent to N139.4 billion from N229.37 billion in the corresponding period of 2018. The decline in charges came despite an increase in loans and advances, which rose from N11.21 trillion to N12.34 trillion.

The banks are: Access Bank Plc, Guaranty Trust Bank Plc, United Bank for Africa (UBA) Plc, Zenith Bank Plc, FBN Holdings Plc, Ecobank Transnational Incorporated, Fidelity Bank Plc, Union Bank of Nigeria Plc, Stanbic IBTC Holdings, Wema Bank Plc and Sterling Bank Plc.

Although some of the banks recorded higher provisioning, the significant decline posted by FBN Holdings Plc, Stanbic IBTC Holdings Plc, UBA and write-back posted by Union Bank, Fidelity Bank and Stanbic IBTC, made the aggregate charges lower.

FBN Holdings Plc recorded impairment charges of N23.37 billion in 2019, down by 69 per cent from N76.19 billion recorded in 2018. UBA's charges fell by 37 per cent from N10.67 billion to N6.66 billion, while ETI Plc witnessed a decline of 21 per cent in charges from N84.26 billion to N66.89 billion.

Union Bank recorded a write-back of N3.79 billion in 2019, compared with a provision of N7.43 billion in 2018. Fidelity Bank Plc witnessed a write-back of N4.84 billion in 2019, compared with charges of N3.28 billion in 2018. Similarly, Stanbic IBTC recorded a write-back of N90 million in 2019, lower than N4.136 billion in 2018.

On the other hand, Access Bank Plc's charges rose from N8.35 billion to N10.61 billion, while that of Zenith Bank Plc increased to N18.26 billion from N14.34 billion. Wema Bank Plc recorded N15.57 billion in 2018, compared with N15.35 billion in 2018, while GTBank Plc posted N2.76 billion, up from N1.74 billion.

Explaining the improvement in impairment charges, the Group Managing Director, FBN Holdings Plc, Mr. UK Eke, said significant strides were made in transforming the group's asset quality and diversifying its revenue streams across the board.

"During the third quarter, our non-performing loans (NPLs) declined further to 12.6 per cent as we approach the end of the curve in the resolution of our legacy portfolio and are confident of further reducing this to under 10 per cent by the end of the current financial year.

"Critically, we have continued to focus on enhancing our risk framework processes, enabling an improvement in the quality of our loan book," Eke said.

Also, Chief Executive Officer of First Bank and Subsidiaries, Dr. Adesola Adeduntan, said in line with their commitment, they had continued to improve their asset quality while further enhancing the group risk management and controls.

"These deliberate steps continue to yield positive results with the non-performing loan (NPL) ratio further declining to 12.4 per cent and impairment charges significantly decreasing by 63 per cent year-on-year. As a result, cost of risk is down to 1.8 per cent from 4.5 per cent in the previous year, providing a stronger platform for enhanced future profitability," he said.

The Central Bank of Nigeria recently doused fears that its aggressive drive to increase banking sector's lending to the private sector might result in a gradual accumulation of NPLs in the sector.

The Director, Corporate Communications, CBN, Mr. Isaac Okoroafor, had said with the lending clause introduced recently by the Bankers' Committee, it would be difficult for habitual loan defaulters to operate in the sector.

With the clause, a lender would be able to recover its loan from the assets of a defaulter domiciled in another bank.

The central bank had raised the minimum loan-to-deposit-ratio (LDR) to 65 per cent with a December 31, 2019 deadline, up from the 60 per cent it had stipulated at the end of September.

The level of NPL ratios in the banking sector stood at 9.36 per cent as at June 2019. That was the first time it would drop to single-digit in the past 40 months.

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