Central Bank of Nigeria (CBN) is to allow banks to write-off bad loans this year that they have already made provisions for to help them to clean up their balance sheets.
Pressure has been building on the country’s banks, whose loan books have been hit by Nigeria’s shrinking economy, plunging currency and foreign exchange shortages following the slump in oil prices. Africa’s biggest oil exporter has been hammered by low crude oil prices, sales of which account for about 70 percent of national income.Commercial banks asked the central bank to amend its rule requiring them to keep non-performing loans on their books for one year even after they have been fully provided for.
The Central Bank of Nigeria has granted them permission to write off these bad loans but this will be a one-off that will only apply until the end of this year.
“In view of the current macro-economic challenges … the CBN hereby grants a one-off forbearance, this year 2016, to banks, to write-off fully provided NPLs without waiting for the mandatory one year,” the bank said in a circular dated July 28 and published on its website on Tuesday.
Non-performing loans are expected to jump to 12.5 percent of total loans this year, up from the central bank’s target of 5 percent at the end of last year, as banks suffer a hangover from an oil industry credit boom that ended abruptly in 2015, according to Augusto & Co, Nigeria’s main rating agency.
Last week, Diamond Bank said its non-performing loan ratio rose to 8.9 percent by the first half, but expects it to fall to 7.5 percent by year end. Rival FCM expects to restructure 25 percent of oil and gas loans in the third quarter after it restructured 50 percent of those loans last year. Asset Management Corporation of Nigeria (AMCON), which was set up in 2010 to absorb bad loans during the country’s financial crisis, has said it has stopped buying non-performing loans (NPLs) and is now focused on recoveries.
MACON, Nigeria’s “bad bank”, has said any decision to allow it to acquire NPLs would be up to the government and central bank. Earlier this month, the central bank shored up mid-tier lender Skye Bank with a loan and replaced its management after its capital fell below levels required by regulators. The central bank has also told banks to set aside extra capital buffers against their dollar loans immediately in the wake of a 40 percent fall in the value of the naira.
On Tuesday, the naira hit an all-time low of 350 to the dollar in a single interbank market trade of $100,000. It later recovered to close at 310.50 after central bank intervened. Also, the central bank has banned lenders from participating in the interbank currency market on any day they access its lending window in order to curb speculation.