LOAN : Experts want monitoring of debtors over rising NPL

The rise in bank’s Non-Performing Loan (NPL) ratio due to huge exposure to some sectors, has become a source of worry to financial experts, as they urge financial institutions to adopt proactive risk management measure. For them, a system whereby the behavior of the borrower is monitored closely to ascertain changes that are likely to trigger default would be necessary.

The experts argued that due to the pressures of the recession on corporate cash flows for debt service, particularly the impact of the foreign exchange rate crisis, there seems to be an increasing level of corporate loan default. Indeed, after a peak of 37.3 per cent in 2009, various regulatory interventions brought it down to 20.1 per cent, 5.8 per cent, 3.7 per cent, 3.4 per cent and then 3.0 per cent in 2010, 2011, 2012, 2013 and 2014 respectively.

It is worthy of note that In spite of these intervention measures, the non-performing loan ratio has steadily climbed back up in recent times.

For instance, a recently released banking industry report by Agusto & Co showed that about 10.9 per cent of the loan book in the banking industry, representing ₦1.5trillion are in Stage 3 (impaired), as at December 2018.

The figure represents 15 per cent increase in non-performing loans (NPLs), when compared to the N1.3 trillion posted in the industry in 2017. Debts in Stage 3 are loans with objective evidence of impairment at the reporting date. In the previous period, Stage 3 loans can be assumed to be ‘individually impaired or non-performing loans (NPLs). They also comprise credit-impaired loans, including all loans that are 90 days’ overdue.

Specifically, in 2017 non-performing loans was ₦1.3trillion, this accounted for 9.5 per cent of the loan book. The 15 per cent increase in Stage 3 loans in 2018 compared to 2017 is evidence of the deterioration of the loan assets recognised by Nigerian banks.Non-performing loans in the banking sector rose to N2.245 trillion in the third quarter of 2018 from N1.939 trillion in the second quarter, according to data from the National Bureau of Statistics.

The NBS data also showed that the NPL ratio – a key metric for banks’ health – rose to 14.16 per cent in the third quarter from 12.45 per cent in the previous quarter, compared to a regulatory limit of five per cent.The Chief Executive Officer of Credit Registry, Jameelah Sharrieff –Ayedun, said being proactive in monitoring loans in general would reduce the likelihood of NPL happening in financial institutions portfolio.

The Head of Research, FSL Securities Limited, Victor Chiazor, said for banks to reduce the NPL ration, they need a team of well trained personnel who will do proper due diligence and credit analysis on the ability of the borrower to payback via the business the loan is being used for or any other means.He noted that proper loan monitoring will also be done while any business expected to be used to fund the repayment of the loan needs to be properly understood for effective monitoring and forecasting.

According to him, diversifying the loan portfolio would also aid in reducing shocks that may arise from policy adjustments which may be harmful to a particular sector and may affect the business or customers ability to repay such loans.“For banks to reduce their level of NPL’s, the banks will have to do things differently. The days of collecting an asset as collateral and going to sleep will have to end. If all these can be sustained, supported by CBN’s policy, giving banks the power to access a borrowers account nation wide in the case of a default, the banks should be able to keep NPL at a minimal level,” he said. TheGuardianNg
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