Banks Cut Lending To Companies, Others

Banks Cut Lending To Companies, Others
Godwin Emefiele, CBN Governor

Deposit Money Banks have reduced their loan growth projections for the 2016 financial year, following the increase in non-performing loans occasioned by economic challenges facing the country.

Commercial banks have posted large impairment charges in their 2015 financial results released in March.

The Chief Executive Officer, Ecobank Transnational Incorporated, Mr. Ade Ayeyemi, said the pan-African lender was expecting flat loan growth and revenue this year as Nigerian and other African economies continued to tackle the global drop in the prices of crude oil and other export commodities.

He said the pan-African lender had adopted a cautious strategy to lending and was expected to gradually reduce the foreign currency portion of its loan book.

Ayeyemi told an analyst call, Reuters reported, recalling that the lender’s loans had declined by nine per cent last year.

According to him, Ecobank expects flat revenue this year, compared with a decline of eight per cent to $2.1bn (N413.7bn) in 2015. The lender’s first-quarter revenue dropped by six per cent to $502m (N98.89bn).

The Chief Finance Officer, Sterling Bank Plc, Mr. Abubakar Suleiman, said the lingering foreign exchange challenges in the country had forced some foreign banks to cut credit lines to Nigerian banks.

The development is expected to affect banks’ loans and advances.

Suleiman said, “There are some institutions that are currently insisting on cash-backed Letters of Credit only. But I also think that as a Nigerian bank, you are concerned about your own inability to meet your obligations when they fall due.

“So you are reluctant to engage or contract on new credits that are not cash-backed because you are not confident that you will be able to meet your obligations. So, it is not just what the foreign banks are thinking, it is also what Nigerian banks are worried about, and will not want to engage in contracts where they will not be able to meet their obligations.”

He added, “The major impact of forex scarcity affects both the banks and the country in exactly the same way. Our inability to meet obligations that are falling due is about credibility; it is about foreign institutions being able to trust the country or trust the banks.

The amount of bad loans in the banking industry rose sharply by 78.8 per cent to N649.63bn in 2015, indicating severe deterioration in the quality of the loan portfolio of the 22 banks, a CBN staff report presented to the Monetary Policy Committee had revealed.

The report revealed the general increase in bad loans (non-performing loans) among the 22 DMBs in the country. This came despite a 30 per cent decline in new loans granted by banks in 2015 to N5.78tn.

According to the report, 18 out the 22 banks recorded increase in bad loans. Furthermore, the number of banks that exceeded the regulatory limit of five per cent for the ratio of bad loans to total loans rose from three in 2014 to eight in 2015, with three banks exceeding 10 per cent.

The report showed that the ratio of bad loans for the industry relative to total loans rose to 4.88 per cent, which is 1.2 per cent less than the regulatory limit.

The sharp increase in bad loans, the report stated, was due to a host of external and internal factors. These included low and volatile oil prices; uncertainty about severe fiscal imbalance at the sub-national level of government; weak output growth; and eroding investor confidence.

The Nigerian economy is suffering from a fall in the prices of crude oil, its main export, which has battered the naira, government revenue and weakened the economy.

Inflation rose to its highest in nearly four years to 12.8 per cent in March. The Ecobank CEO had said that adverse currency movements and regulatory requirements hit margins, while slower economic growth hurt revenue generation.

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