According to research, Deposit Money Banks are recovering debts due by chronic debtors from their accounts in other banks in order to slow the increase of non-performing loans in the industry.
According to data from the Central Bank of Nigeria and the National Bureau of Statistics, NPLs in banks decreased slightly from N1.2tn at the end of the second quarter of 2020 to N1.1tn at the end of July 2021.
Despite an increase in gross loans in the industry during the time, this is the case. The CBN stated that the actions it implemented, such as the Global Standing Instruction, to decrease banking sector risks were assisting in the reduction of NPLs in the sector.
According to the CBN, the GSI, which went into effect on August 1, 2020, allows banks to recover overdue principal and interest on any account held by the debtor across all financial institutions in Nigeria.
It stated that the minor improvement was due to the tightening of risk management processes, the GSI policy, and regulatory forbearance, which allowed banks to restructure COVID-19-affected credits.
According to NBS figures for the banking sector for Q3 2020, although gross loans in the lending industry were at N18.9 trillion, total non-performing loans amounted to N1.2 trillion.
According to the most recent CBN data, while gross loans increased to N22.2 trillion, NPLs decreased significantly to N1.1 trillion.
In its most recent Monetary Policy Committee report, the CBN stated that it will not boost lending rates in the sector.
“On loosening, the committee believed that this would lower retail interest rates and improve obligors’ ability to repay their obligations, with a corresponding reduction in NPLs,” it stated.
According to the CBN, “recent data also show that stability has been maintained and a smooth functioning of financial intermediation has been ensured” in the banking industry.
“According to a CBN staff report, the banking sector’s non-performing loan ratio fell from 6.3 percent in February to 6.0 percent in March, and then to 5.9 percent in April.”
The MPC highlighted that the capital adequacy and liquidity ratios, at 15.2 and 41.7 percent, respectively, remained above the prudential norms at the end of July 2021.
The committee also applauded the decrease in the NPL ratio to 5.4 percent in July 2021, down from 5.7 percent in June.
The committee advised banks to maintain ongoing efforts to reduce NPLs below the 5.0 percent regulatory threshold.