CBN ends loan suspension and demands repayment

The Central Bank of Nigeria (CBN) has said it will no longer extend the lending forbearance period as the two-year moratorium on firms and companies that have taken ease ends this month.

According to the apex bank, companies are required to start repaying these loans.

It comes as the level of non-performing loans (NPLs) from commercial banks fell for the first time in about a decade below the regulatory benchmark of 5% to 4.94% at the end of December 2021.

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As part of the measures to mitigate the effects of the COVID-19 pandemic on businesses, the CBN has put in place forbearance programs for businesses to help them weather the storm. The forbearance included the restructuring of loan repayment plans, a moratorium as well as the reduction of CBN interest rates on all its intervention programs to five percent from nine percent until the end of this month. .

CBN Governor Godwin Emefiele at the end of the November 2021 MPC meeting, while citing improving economic activities, urged businesses to resume loan repayments.

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“If you remember our view, we granted forbearance in only two areas.

“One was mainly about the fact that we had said that all loans that companies and businesses had negatively affected by COVID-19, should be given to them for about two years. We first started by saying a year, from 2020 to March 2021, and in February 2021 we extended it for another year as the Delta strain of the pandemic continued. It had been two years that would expire in March 2022.

“Right now, we think the global economy has opened up; the lockdowns have been lifted and of course we know the economic damage and deaths that have resulted and I’m so sure few counties, if any, in the midst of this pandemic will want to stop engaging in a large-scale lockdown, especially because most countries are all administering vaccines which they believe should help reduce the impact of the strain of the virus.

“So we believe that in Nigeria, companies/companies are back in business, incomes have improved and if incomes have improved, then companies or companies that have taken out loans should start paying back.

Meanwhile, the 4.94% NPL ratio recorded in 2021 was considered by analysts to be impressive compared to the 6.1% recorded in December 2020. The current level of NPL is the lowest average for the industry since more than 10 years.

The NPL ratio measures the rate of bank loans that either deteriorate because they are not properly managed or completely deteriorate.

In October 2021, the NPL was 5.3%, reflecting a gradual improvement, compared to 5.7% in October 2020.

The non-performing loan ratio was 5.7% in June 2021 from 5.8% in May 2021. It fell to 5.70% in June 2021 from 6.4% in June 2020, a trend indicating that the banking sector was more resilient. This is largely due to the implementation of the GSI policy and the strengthening of risk management practices.

Speaking on this development in his personal statement as a member of the Monetary Policy Committee (MPC), Aliyu Ahmed explained that the improvement in non-performing loans (NPLs) is mainly due to the CBN’s regulatory oversight during of the year.

Similarly, gross credit in the banking sector increased from 20.48 trillion naira in December 2020 to 24.57 trillion naira in December 2021. This translates into an increase of more than 4 trillion naira during the period. considered. This increase was attributed to the increase in the funding base of the industry and the Central Bank of Nigeria (CBN) directive on loan to deposit ratio.

However, more members of the CBN’s Monetary Policy Committee (MPC) are considering further tightening of monetary policy following rising inflation in the country.

In their assessment of the Nigerian banking sector, committee members noted that the sector remained resilient, with average non-performing loans exceeding regulatory requirements.

According to CBN Deputy Governor Aishah Ahmad, non-performing loans have fallen to their lowest level in more than a decade despite increased lending by banks. She noted that total credit increased by 4.09 trillion naira between the end of December 2020 and December 2021, with significant credit growth to the manufacturing, general trade and oil and gas sectors.

“This impressive increase was achieved amid a continued decline in the non-performing loan ratio from 5.10% in November 2021 to 4.94% in December 2021, six basis points below the regulatory benchmark, for the first times in over a decade,” she said. .

This was also highlighted by another member, Akinniju Festus, who noted that NPLs had fallen below the 5% prudential requirement for the first time in a long time. He also noted that the capital adequacy ratio, despite its slight decrease from 15.1% in December 2020 to 14.53% in December 2021, is still above the prudential requirement of 10%.

Tight liquidity conditions prevailed in the banking system, with the average net liquidity balance standing at N182.71 billion at end-December 2021, below the benchmark of N313.8 billion – 450.00 billion of naira.

Meanwhile, CBN Deputy Governor Adamu Lamtek said the option of monetary policy tightening remains on the table even as the decision becomes increasingly difficult to make. That’s when inflation continues to rise as the country heads into an election year in 2023.

“In addition, the US FED has already provided forward guidance on at least three rate hikes in 2022, a move that will affect the currency exposures of the federal government and private sector institutions, especially commercial banks. It may also lead to more REIT exits from the local equity market.

“In a context of pressure on both production and prices, I must admit that maneuvering monetary policy would be difficult, to say the least.

“Under these circumstances, additional fiscal measures are needed to ease the adjustment burden on monetary policy. Clearly, political support has been very key to macroeconomic recovery in 2021. More is needed on the fiscal side in 2022, especially in sectors like agriculture, SMEs and solid minerals. In addition, physical infrastructure and security should retain their priority place on the tax base a year from now.

“I think the option of tightening policy using the policy rate remains on the table as long as inflationary pressures persist. I hope, however, that the policy space to support growth will not shrink further by the end of the year. next MPC meeting in March 2022,” Lamtek said.

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