Investors, dissatisfied with the massive increase in banks’ non-performing loans (NPLs) in the 2021 financial year, which was triggered by the current economic downturn, urged the government to stimulate economic activities, particularly in ensuring security and facilitating the movement of agricultural produce as well as the seamless export of commodities, over the weekend.
According to the investors, the Central Bank of Nigeria (CBN) may have reached the limit of its monetary policy tools in supporting the economy. This is especially true if the fiscal complements are not triggered right away.
They voiced concern that if the pattern continues, it will reduce banks’ bottom lines in the current fiscal year, lowering dividend yields.
According to them, the government’s failure to create an enabling climate that would promote real-estate company operations and profits will bolster banks’ nonperforming loans (NPLs) and destroy their profitability.
The impact of the COVID-19 crisis on business cash flows for debt service, particularly the impact of foreign exchange (forex) rate crises, has exacerbated the level of corporate loan default.
The CBN had compelled Deposit Money Banks to increase lending to the real sector, smallholder farmers, Micro, Small and Medium Enterprises (MSMEs), consumer credit and mortgage facilities for bank customers, grow external reserves, and support efforts aimed at diversifying the economy through intervention programs in order to achieve domestic macroeconomic and financial stability.
The problem is exacerbated, according to Godwin Anono, president of the Standard Shareholders Association, by the fact that most businesses have yet to emerge from the economic downturn, persistently difficult domestic operating circumstances, and sluggish economic growth in recent years.
According to him, the country’s economic recovery will necessitate not only complementary fiscal policies, but also actions to achieve the desired goals, particularly in improving the country’s transportation network so that goods can be moved easily from farmland to market, reducing wastage and keeping costs in check to boost the manufacturing sector.
According to the findings, the total NPLs held by nine banks grew to N814.08 billion in 2021, up 3.16 percent from the N789.1 billion reported in 2020.
Access Holdings Plc, Zenith Bank Plc, Wema Bank Plc, FCMB Group, Union Bank of Nigeria Plc, and Stanbic IBTC Holdings Plc are among the nine banks.
Guaranty Trust Holding Plc, United Bank for Africa Plc, and Ecobank Nigeria are among the others. However, with the banking sector’s NPL ratio closing 2021 at 4.85 percent, some of the nine institutions were able to stay inside the Central Bank of Nigeria’s five percent NPL limit.
Further findings demonstrate that, while some banks had an increase in NPLs over the time under study, others saw a large drop.
According to the banks’ audited financial statements for 2021, Access Holdings, Zenith Bank, and GTCO had the most NPL by value among the nine banks, while Stanbic IBTC Holdings had the lowest.
In 2021, Access Bank reported N181.5 billion in NPLs, up 4.3 percent from N161.2 billion in 2020, while Zenith Bank reported N146.8 billion, up 17.3 percent from N125.2 billion in 2020. Wema Bank reported N21.3 billion in 2021, up 19.3% from N19.3 billion in 2020, while FCMB Group reported N45.93 billion in 2021, up 61% from N28.57 billion in 2020.
Others include Union Bank of Nigeria, which recorded N38.66 billion in NPLs in 2021, up from N29.45 billion in 2020, and Stanbic IBTC Holdings, which reported a 23.4% decrease in NPLs to N20.3 billion in 2021, down from N25.5 billion in 2020.
Anono noted that the state of the economy could cause those loans to become delinquent even if the borrower does not intend for them to do so, saying that when the economy is struggling, the likelihood of loans becoming delinquent increases dramatically.
Anono stated that port and land border reforms must be implemented to achieve a more efficient exportation process and to reduce smuggling activities, as well as the establishment of a special court for the speedy adjudication of disputes arising from commercial transactions, in order to boost the performance of the real sectors.
According to him, a major improvement in the protection of lives and property in the country, notably on farmlands that have been decimated by the herdsmen problem and the accompanying violence, which has claimed lives, is also essential.
He also emphasized the importance of a fiscal response that includes measures to improve electricity generation, transmission, and distribution in Nigeria, as this is critical to lowering the costs of doing business and making locally manufactured goods competitive in both domestic and international markets.
Implementation of these policies, according to Awani, will develop new enterprises, reduce import dependency, increase foreign exchange profits, ensure a steady exchange rate, and possibly cause the currency’s value to remain stable.
On the other hand, if these concerns are not addressed, he believes that increased lending to the economy will result in an increase in non-performing loans in the Nigerian financial system.
Eric Akinduro, president of the Ibadanzone Shareholders Association, stated that non-oil exports from Nigeria are expected to expand, as well as the cost of exporting goods from Nigeria, making exportation more profitable than before.
As a result of the rise of agricultural and allied industries, he believes that enacting the necessary fiscal policy will help to support the development of commodity exchange and prospects in logistics.
Increased financing to the real sector in Nigeria would result in shared wealth, a reduction in smuggling, and an increase in local production, according to Akinduro, but he stressed the necessity for an immediate fiscal policy response to build the economy.