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Chinwendu Obienyi
Nigerian banking industry’s non- performing loans (NPLs) witnessed a 14 per cent rise in the first half of 2020 (H1) ending a 2-year trend of continued decline in NPLs, since the third quarter (Q3) of 2018.
According to the latest banking sector report released by the National Bureau of Statistics (NBS), NPLs in banks rose to N1.212 trillion at the end of June 2020, from N1.059 trillion recorded in December 2019, indicating that NPLs across Nigerian banks rose by N152.4 billion or 14.38 per cent in six months.
At the end of H1 2020, Oil and Gas sector contributed the largest share to the NPLs recording a significant 22.2 per cent increase from N219.91 billion recorded at the end of fourth quarter (Q4) of 2019 to N268.79 billion in second quarter (Q2) of 2020.
Default in the Construction sector recorded a 93.4 per cent increase, from N86.79 billion in Q2 2019 to N167.86 billion in Q2 2020. However, despite the rise in NPLs across critical sectors, some sectors including agriculture, transportation, power & energy, and education recorded a decline.
According to financial experts, recent upsurge in NPLs is mostly attributed to non-payment of loans by bank obligors due to the covid-19 induced lockdowns and Nigerian banks have also seen their asset quality decline due to the fall in oil prices.
They argued that with the increase in debt servicing burden, the Federal Government’s debt service to revenue ratio would continue to worsen, especially given weak revenue growth and further currency devaluation to N381.00/$1.00 in Q3 2020.
This is coming after the Debt Management Office (DMO) revealed that Nigeria’s public debt stock grew by 21 per cent year-on-year (y/y) and 8.3 per cent quarter-on-quarter (q/q) to N31 trillion.
A statement obtained from the DMO’s website, indicated that the total public debt stock comprising the debt stock of the Federal Government, the 36 state governments, and the Federal Capital Territory, increased by N2.381 trillion within 3 months when compared with the N28.628 trillion recorded on March 31, 2020.
But, in an emailed note to Daily Sun, analysts at Afrinvest noted that the share of external debt to total debt for the Federal Government has now reached 38.9 per cent, closer to its target of 40.0 per cent.
According to the investment and research based firm, this should prevent the issuance of further external loans given the strong chance of further currency adjustments. “Notwithstanding, we expect a sustained rise in the FG’s external debt stock given additional budget support of $2.1 billion yet to be disbursed by the World Bank, AfDB and the Islamic Development Bank. Looking forward, we expect more domestic debt issuances to bring down the share of external debt and lower devaluation risk.
