- Experts urge more recoveries, to help shareholders
As concerns mount over inability of most bank debtors to service their loans, five commercial banks have succeeded in reducing their loan impairment profiles.
Collectively, the banks’ seeming bad loans of N1.08 trillion as at the end of 2015 dropped sharply to N484.245 billion at the end of 2016; representing over 50 per cent recoup.
Invariably, the banks had been able to recover debts totaling N596billion.
A loan is said to be impaired when it is not certain that all the related principal and interest payments will be collected.
The five banks that recorded the feat in loan recovery within the year are: Zenith Bank, First Bank of Nigeria Limited, Fidelity Bank Plc, Diamond Bank Plc and First City Monument Bank Plc.
First on the list is Zenith Bank. The Tier 1 financial institution dropped its loan impairment from N191 billion in 2015 to N185 billion in 2016.
Also, FCMB slashed its loan impairment from N689 billion to N106 billion within the same period under review.
Others are FBN Limited, which dropped its impairment from N107 billion to N99billion within the same period. Fidelity Bank also recorded a drop of about N2 billion when its loan impairment fell from N55billion to N53billion in 2016.
Diamond Bank reported N39 billion impairment losses on financial assets, away from N47billion, which was recorded in 2015.
IT’S NOT YET UHURU, EXPERTS WARN
Though, some financial and economic analysts, who spoke with The Point, admitted that the drop in the banks’ loan impairment was a welcome development, they, however, warned that the implication of impairment losses on banks would have far-reaching effects on shareholders and potential investors.
They were of the view that although all the banks recorded loan impairment losses, some of them still managed to end the year with significant bottom-lines and returns to shareholders.
A professor of Economics, and financial commentator, Mr. Leo Ukpong, said the increase in non-interest income could be attributed to the foreign exchange translation gain as well as an increase in fees and commission income.
He said, “It is really not good for the banking sector as impairment losses is on the increase. It is an indication that bank customers are not honouring their promises, which could be linked to liquidity problems. Government needs to inject money into the economy to improve business activities.
“The implication to stakeholders in these banks is that it will affect the bottom-line at the end of the financial year and invariably affect returns on investment. Shareholders should not expect higher dividend, except if some of these Non-Performing Loans are recovered.”
The implication to stakeholders in these banks is that it will affect the bottom-line at the end of the financial year and invariably affect return on investment. Shareholders should not expect higher dividend, except if some of these Non-Performing Loans are recovered
An asset management chief executive and former banker, Mr. Owoseni Bankole, explained that for impairment losses to reduce in the banks, managements of every bank should device ways of monitoring all processes of giving out loans.
According to him, government should also try to improve the economy by diversifying the economy away from oil.
“They should provide a favourable forex market. Government policies should be consistent with what they preach. They should focus on local production, especially agriculture, so that Nigeria can feed itself as a nation. Government should encourage export by paying for the Export Expansion Grant as they promised the exporters. They should pay local contractors. Also, federal and state governments should pay their workers regularly,” he said.
The Managing Director, High Cap Securities Limited, Mr. David Adonri, said, “NPL mounts because borrowers are yet to recover from the economic crisis. Interest income for most banks is mainly from public-sector lending, which is at high interest rate. For 14 banks to suffer such impairment, it means that there is a looming danger.”
Another economist, Mr. Bartholomew Onyekwere, explained that the implication of increase in loan losses provision is that bank customers’ defaults in loan repayment is on the increase, which invariably will lead to low or no returns to the shareholders at the end of the financial year.
“It is a sign that the loan facilities given are not performing and it has a grave consequence on the banking industry, which means danger looms in the sector,” he said.
Meanwhile, findings by The Point revealed that the results of other non-financial institutions also buttressed the view of escalating impairment losses on the banks.
For instance, cash balances of most consumer goods and oil and gas companies are wearing thin looks, with many of them running on overdrafts to stay liquid.
National Chairman, Progressive Shareholders Association, Mr. Boniface Okezie, said, “The final quarter for most banks is typically telling, because it is after then that they conduct full audit of their accounts.
“Auditors often take a conservative approach towards credit assessments and may force the banks to provision for more bad loans, which is unethical. If this occurs, then we may be looking at one of the highest growth in impairments for Nigerian banks in over a decade.”
Many of the banks’ CEOs in their financial statements, had collectively said allowances for impairment of loans and advances to customers were key judgmental areas of their audits, due to the level of subjectivity inherent in estimating the impact of key assumptions on the recoverability of loan balances.
They explained that within the financial year, global oil prices remained low, resulting in lower government revenue and scarcity of foreign currency in
Nigeria.
This economic situation has particularly affected the ability of bank customers to meet credit obligations. Thus, significant judgment is required to determine the allowance for impairment for loans and advances granted to the bank’s customers, particularly the foreign currency denominated loans and
advances.
The Managing Director, FBN Holdings, Mr. Urum Kalu-Eke, explained that the impairment change was largely driven by the translation effect of the foreign currency portfolio due to the devaluation of the naira, as well as one-off exceptional credit charge from legacy exposures in
subsidiaries.
