Wema Bank, Union Bank, Four Other Tier-2 Banks Report N177.73bn Bad Loans in 2020

Wema Bank, Union Bank and four other Tier-2 banks in Nigeria reported N177.73billion bad loans or Non-Performing Loans (NPLs) in 2020, InsideBusinessNG investigation has revealed.

The NPL reported by these six Tier-2 banks rose by 4.4 per cent from N170.16 billion reported in 2019.

The other four are Fidelity Bank, Stanbic IBTC , FCMB and Sterling bank.

The National Bureau of Statistics (NBS) in its last report on the subject disclosed that bad loans in the banking sector hit N1.23trillion in 2020 from N1.06trillion in 2019.

The N1.23 trillion bad loans reported by the bureau is the highest since third quarter of 2019 when N1.45triillion was reported.

The bureau in its “Selected Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels and Staff Strength” report disclosed that gross loans by banks was N20.48trillion as at fourth quarter of 2020.

The breakdown revealed that Fidelity Bank has highest bad loans in the chart, recording N50.39billion NPL in 2020 from N37.19billion in 2019, followed by FCMB Holdings with 3.2 percent increase in NPL to N28.57billion in 2020 from N27.7billion in 2019.

Union Bank of Nigeria closed 2020 with N29.45billion bad loans, a decline of 15.3 percent from N34.76billion reported in 2019.

Stanbic IBTC in the year under review reported N26.49billion bad loans from N21.59billion reported in 2019 while Sterling Bank’s NPL dropped by 6.1 percent to N25.9billion in 2020 from N27.6billion reported in 2019.

In addition, Wema Bank bad loans dropped significantly by 21 percent to N16.9billion in 2020 from N21.35billion reported in 2019.

In terms of Central Bank of Nigeria (CBN) five percent NPL ratio threshold, InsideBusiness gathered that these banks report below prudential requirement.

According to our correspondent investigation, Sterling Bank has the lowest NPL ratio of the six banks, followed by FCMB Holdings.

Sterling Bank in 2020 reported NPL ratio of 1.9 percent from 2.2 percent, while FCMB reported 3.29 per cent NPL ratio in 2020 from 3.67 percent in 2019.

Fidelity bank NPL ratio moved from 3.3 percent to 3.8 percent in 2019, as Wema Bank’s NPL dropped to 4.7 percent in 2020 from 7.38 percent in 2019.

Union Bank of Nigeria also reported drop in its NPL ratio to 4 percent from 5.84 percent and Stanbic IBTC Holdings reported 4 percent NPL in 2020 from 3.9 percent in 2019.

Our correspondent gathered that NPL ratio of 6.02 percent reported by NBS as at fourth quarter of 2020 is marginally different from 6.01 percent reported by the Central Bank of Nigeria (CBN) at end-December 2020.

 NPL ratio measures the rate of bank loans that are either going bad because they are not being serviced adequately or have gone bad completely.

The apex bank acceptable NPL ratio is five per cent, however, this ratio has been breached since the twin problem of plunge in oil prices in the fourth quarter of 2019 and the Covid-19 pandemic that ravaged the global economy in 2020.

The Monetary Policy Committee (MPC) had noted that the ratio remained above the prudential benchmark of five per cent and urged the apex bank to sustain its regulatory measures to bring it below the prudential benchmark.

The CBN governor, Godwin Emefiele in the communiqué at the end of the first MPC meeting of 2021 said, “The Committee commended the Bank for maintaining a sound regulatory surveillance over the banking system by ensuring a reasonably low level of NPLs, even with the aggressive credit expansion programme during this crisis period.

“Though, NPLs remained slightly above the prudential benchmark, members noted that the banking system remained stable, strong and resilient.

“Given the success recorded under the LDR policy, it thus urged the Bank to sustain its risk surveillance approach and ensure the continued soundness of the banking system.”

He added that, “With the impact of the corona virus on particular sectors of the economy, it was not entirely unexpected, nevertheless it is imperative that we continue to work to ensure that banks comply with our macroprudential framework in order to prevent further deteriorations in their loan portfolios.”

The NPL ratio is one of the most important benchmarks for measuring the health of the banking sector. At above six per cent, it indicates most commercial banks are carrying more underperforming loans than expected mostly because the private sector is not servicing the loans.