Banks increase assets underperforming charges by 113 percent

Olusola Bello
Nine banks have significantly increased their impairment charges to N288.182 billion in 2020. This is an indication of a soar of 113 percent when compared with N135 billion recorded in 2019.
An impairment charge usually reflects a fall in value of the asset.
The action of the banks was meant to reduce the impact of Covid 19.

The banks increased their lending partly due to the Central Bank of Nigeria (CBN)’s policy on loan-to-deposit ratio (LDR), which is put at 65 per cent, the COVID-19 pandemic, which disrupted economic activities, is expected to affect most risk .
According to ThisDay, those nine banks that increased their impairment charges are: Access Bank Plc; Ecobank Transnational Incorporated Plc; FCMB Group Plc; Fidelity Bank Plc; Guaranty Trust Bank Plc; Sterling Bank Plc; Stanbic IBTC Holdings Plc; United Bank for Africa Plc and Zenith Bank Plc.

The World Bank has sustained pressure on the Federal Government on the need to remove all forms of subsidy on petrol and electricity supply and to harmonise the forex rate.
While the total provision by banks rose by 82 per cent, some individual bank raised their impairment charges by over 200 per cent with Stanbic IBTC increasing its charges by 509 per cent from N1.632 billion to N9.935 billion.
GTBank Plc recorded a jump of 299 per cent in impairment charges, from N4.911 billion in 2019 to N19.572 billion in 2020. Access Bank Plc posted impairment charges of N62.893 billion, showing a jump of 212 per cent from N20.189 billion in 2019. Ecobank posted impairment charges of N86.734 billion, indicating an increase of 79 per cent from N48.316 billion booked in 2019. Zenith Bank Plc made provisioning of N39.534 billion in 2020, up 64 per cent from N24.032 billion in 2019. FCMB Group’s impairment charges stood at N22.307 billion in 2020, indicating an increase of 62 per cent from N13.747 billion in 2019. Fidelity Bank Plc, which had a write-back of N5.292 billion in 2019, made a provision of N16.858 billion in 2020.
United Bank for Africa Plc booked impairment charges of N22.443 billion last year, up by 35 per cent from N16.336 billion. Similarly, Sterling Bank Plc increased its impairment charges by 35 per cent from N5.838 billion in 2019 to N7.906 billion in 2020.
However, FBN Holdings Plc’s impairment charges declined from N51.093 billion to N50.596 billion.
Investment and financial analysts said the higher impairment charges did not come as a surprise given the headwinds in the economy last year.
According to the Chief Executive Officer (CEO) of Blackstone Capital, an investment management firm, Lizzie Kings-Wali, the rising cost of risk of banks, which is simply referred to as higher impairment charge observed in banks’ audited 2020 financial statements is a reflection of the rising Non-Performing Loan (NPL) ratio and weakening fundamentals of the economy.

She said the industry’s NPL steadily rose in the second half of the year, printing at 6.01 per cent by December 2020, some 101 basis points above the prudential tolerance of 5.0 per cent, hence necessitating a higher impairment charge.
“In fact, the NPL growth is higher in nominal terms, except that the double-digit growth in loan book partly masked the effective rise in the NPL ratio. More so, the relatively weak fundamentals of the economy exacerbated by the COVID-19 pandemic and civil unrest resulted into higher portfolio impairment charge on stage 1 loans, despite being performing assets,” she stated.

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