Kayode Tokede
A total of 10 banks' loans provision increased to N1.38 trillion in nine months of 2024, about N113.46 billion higher than N1.26 trillion reported in 2023 financial year as lenders operating in Nigeria, Sub-Sahara Africa and across the globe makes move to reduce the negative impact of macroeconomic challenges on their risks assets.
The provisioning soared by 79 per cent compared with N770.55 billion recorded in nine months of 2023, according to unaudited reports submitted to the Nigerian
Exchange Limited (NGX). Meanwhile, the 10 banks loans provision had increased by 135 per cent from N538.12billion in 2022 financial year when compared to N1.26 trillion in 2023.
An impairment charge or loans provision is a process used by businesses to write off worthless goodwill or report a reduction in the value of goodwill. Impairment captures a reduction in the value of a firm's assets. It is otherwise captured as provision made for loan losses.
The 10 banks are: Access Holdings, Guaranty Trust Holdings Plc, FBN Holdings, Wema Bank Plc, Stanbic IBTC Holdings, and Zenith Bank. Others are Ecobank,
United Bank for Africa Plc, Fidelity Bank Plc, Sterling Financial Holdings Company Plc.
In the first nine months of 2024, the Central Bank of Nigeria (CBN) hiked the country's benchmark rate by 850 basis points from 18.75 per cent to 27.25 per cent.
While banks increased their lending partly due to the CBN's policy on loan-to-deposit ratio (LDR), which is put at 65 per cent, macroeconomic challenges in Nigeria and sub-Sahara African countries where they operate have disrupted economic activities, and it is expected to affect most risk assets.
THISDAY analysis of the banks' results revealed that Access Holdings, Zenith Bank, UBA, Ecobank, Wema Bank, Stanbic IBTC Holdings surpassed their 2023 loans provision in nine months of 2024.
Further checks showed that GTCO and Sterling Financial Holdings Company cut down on their impairment charges in the period under review.
Stanbic IBTC Holdings emerged as the only financial institution with highest increase in impairment charges in the period under review. The lender reported N59.38 billion impairment charges in nine months of 2024, about
496 per cent increase over N9.96billion reported in nine months of 2023.
Stanbic IBTC Holdings had explained that increase on its impairment charge on loans and advances was due to the impact of expected credit loss (ECL) charges on new loans booked and additional provisioning on existing
NPL's. Stanbic IBTC Holdings in 2023 financial year reported N15.45 billion impairment charges, about 50 per cent increase from N10.29billion reported in 2022 full financial year.
In nine months under review, Access Holdings recorded N144.61 billion impairment charges, an increase of 134 per cent increase from N61.8 billion in nine months of 2023, while Zenith Bank posted impairment charges of
N477.8 billion, showing a jump of 128per cent from N209.99 billion in nine months of 2023.
As UBA declared N123.5billion impairment charges in nine months of 2024, a decline of 15 per cent from N144.62billion in nine months of 2023, FBN Holdings
announced N171.4billion impairment charges in nine months of 2024, up by 111 per cent from N81.04 billion reported in nine months of 2023.
Capital market analyst posits that the growing impairment charges does not come as a surprise given the headwinds in the economy, stressing that banks are battling with rising inflation rate, unstable foreign exchange and hike in interest rate.
Investment Banker & Stockbroker, Mr. Tajudeen Olayinka stated that the rising cost of risk of banks, which is simply referred to as higher impairment charge observed in some banks' nine months of 2024 is a reflection of weakening fundamentals of the economy.
"The NPL growth in some banks is higher in nominal terms, except that the double-digit growth in loan book partly masked the effective rise in the NPL ratio. More so, the relatively weak fundamentals of the economy exacerbated by the inflation rate and unstable foreign exchange resulted into higher portfolio impairment charge on stage 1 loans, despite being performing assets," he
stated.
He added that the percentage of stage two loans, which though performing but had shown stress and likelihood of delinquency over the near term had increased across the industry, "therefore deserving the conservative stance of banks and their auditors to proactively take a higher anticipatory impairment charge on such loans."
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"Hence, the rising cost of risk is a reflection of the lagged impact of the realities of the economy and banks' inherent credit risk. Whilst the CBN and banks are apparently seeking measures to stem this potential erosion to banks' profitability going forward, I expect more credit losses in 2024FY, as the full impact of the macro weakness, takes toll on banks' asset quality," he said.
However, he said the situation would not degenerate into a crisis as NPL ratio should possibly peak in the year and begin to moderate in 2025.
"More importantly, the impact on banks would be uneven. For instance, banks that have lent foreign currency to domestic entities like those in the power sector, which generate naira revenues maybe hard hit, as the impact of naira devaluation and relative FX supply shortages balloon their debt service and potentially impair borrowers' ability to effectively meet obligations as at when due," he added.
