The challenging economic situation in the country made the banking industry’s non-performing loans ratio to rise from N1.678bn in June to N2.084tn in December 2016, the latest Central Bank of Nigeria’s Financial System Stability Report revealed on Wednesday.
The financial soundness indicators used to appraise the stability of the financial system included asset quality, capital and income-expense, the report stated.
The FSS report stated that the ratios of non-performing loans to gross loans increased from 11.7 per cent in June to 14 per cent in December 2016.
The report read in part, “Commercial banks in the country experienced deterioration in assets quality at end-December 2016. The deterioration in asset quality was largely attributed to the rising inflationary trend, negative GDP growth, and the depreciation of the naira.
“The ratio of regulatory capital to risk weighted assets decreased by 0.8 percentage points to 13.9 per cent at end-December 2016, compared to 14.7 per cent at end-June 2016.
“Similarly, the ratio of Tier-1 capital to risk weighted assets declined by 0.9 percentage points to 12.9 per cent at end-December 2016 from 13.8 per cent at end-June 2016. Despite the marginal decrease, the ratios remained above the Basel minimum threshold.”
It added, “The return on assets declined by 1.0 percentage points to 1.3 per cent at end-December 2016 from 2.3 per cent recorded at end-June 2016, while the ratio of non-interest expenses to gross income increased to 63.8 per cent at end-December 2016 from 54.6 per cent recorded in the preceding half of the year.”
The CBN also conducted routine and special examinations of foreign exchange activities of banks during the review period.
The examinations revealed a number of infractions which included: breaches in net open position, foreign currency trading position limits, failure to repatriate export proceeds on time, and inappropriate involvement of banks in international money transfer
The report stated that other breaches observed were non-compliance with forward trading rules, late/non-submission of foreign exchange transaction documents by importers, and non-compliance of authorised dealers with the CBN directives on the specified sectoral disbursements.
The CBN said appropriate regulatory measures, including sanctions were taken on the banks without specifying the nature of the penalties.
The report showed that the CBN recovered a total sum of N21.27bn from banks in 2016, being excess charges illegally deducted from the account of their customers.
The amount, it said, was recovered following complaints received from a total of 2,656 bank customers in the period under review.
The CBN explained that apart from the N21.27bn, the sum of $3.35m and €19,263.62 were recovered and refunded to customers during the period.
The complaints were on Automated Teller Machines and electronic payment-related issues, excess charges, dishonoured guarantees, dishonoured cheques, fraudulent withdrawals and deposit irregularities.
The CBN report said the banking sector’s credit to the private sector grew by 19.37 per cent to N22.34trn as at the end of December 2016, compared with the growth of 14.44 per cent and 3.29 per cent recorded at end of June 2016 and the corresponding period of 2015, respectively.
It said total exposure of the top 50 obligors stood at N5.59trn, representing 34 per cent of total industry credit exposure of N16.29trn.
As at the end of December 2016, loans to the oil and gas sector constituted 30.02 per cent of the gross loan portfolio of the banking system as credit to that sector grew from N4.51trn, to N4.89trn.
The CBN report said loans to state governments declined marginally to N1.37trn from N1.38trn at end of June 2016.
It said the period witnessed increased funding to the states through a Federal Government refund totalling N522bn in excess debt service deductions (Paris Club Debt Refund).
In addition, the report said a N90bn bail-out facility at nine per cent interest rate was provided to enable states reduce the backlog of salaries.
Overall, the report explained that credit risk remained tangible in 2017 as obligors remained constrained in servicing both naira and foreign currency denominated loans owing to the low level of economic activities, low international oil prices and the depreciation of the naira.