NIGERIAN NON-PERFORMING LOANS UP 158%, SAYS CBN

Nigerian banks may currently be facing most trying times since 2012 as, says the Central Bank of Nigeria, nonperforming loan provision more than doubled in six months to last June.

According to the CBN's Financial system stability report for June dated September 29 but released only recently, non performing loans grew to N1,678bn from N649.63bn by December 2015.

Within the same period, total domestic credit grew by only 12.52% to N24318.1bn  which more than points to looming crisis given the leap in bad debts provision.

Hence, non performing loans to total loans hit new high of 11.7% in June compared with single digit percentage share of below 5% since 2012 after the mop up of the toxic loans that gave birth to 2008 stock market crash and real stress for the Nigerian finance market.

What's more, the CBN report indicates that 33.4% of loans to private sector by June was to 50 customers most of them in the oil and gas, and agriculture although credit to state governments also picked up considerably.

Any worry or fears over fast growing bad debts is never misplaced. The European Union worried loudly last year when a study of the Italian banking system showed that many banks were reeling under the weight of total banking $560bn bad debts that could trigger financial crisis in Europe.

Following Fitch report that indicated that China now down plays bad debts mountain, the main fear was that about $2.1tr or one third of GDP will be needed to clean it up.

Mid 2015 when it was found that non performing loans make up 13% of total loans with India's Central Banking leading the pack with 21% of its own loans as non performing, there was also great concern in India.

All these because non performing loans constrain banks from giving out more loans; increase credit risk contribution to overall liquidity crisis and slow down economic activities.

In Nigeria, says the CBN report, the record level of non performing loans by June was due to inability of customers to service foreign currency denominated credits; State governments own financial stress and present day Nigerian micro economic realities.

Besides, the report expects higher trending in the non performing loans ratio in the second half of 2016 due to the Naira value depreciation, bank credit exposure to troubled oil and gas sector and still rising inflation rate.

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