Bank NPL reduction linked to AMCON, improved risk management
February 26 2014
All banks met the minimum regulatory liquidity ratio (LR) of 30 percent at end-June 2013, according to the Central Bank of Nigeria (CBN). The industry liquidity ratio at the end of June 2013, stood at 67.8 percent, compared with 62.7 percent at end-June 2012.
Consequently, the industry ratio of non-performing loans (NPLs) to total loans at end-June 2013, stood at 3.7 percent, compared with 4.3 percent at end-June 2012. This was within the maximum threshold of 5 percent set by the CBN. The reduction in the NPL ratio was attributed to the intervention of Asset Management Corporation of Nigeria (AMCON) in the industry and improved risk management practices by deposit money banks (DMBs).
The CBN’s 2013 half year Economic Report revealed that the health of banks in the system further improved in the first half of 2013. All the banks, with the exception of one, met the regulatory minimum capital adequacy ratio (CAR) of 10 percent in the first half of 2013. The affected bank had commenced a private placement of new shares aimed at raising N20 billion fresh capital and an additional capital injection of N20 billion from a core investor. Overall, the average CAR in the industry was 19.1 percent, compared with 8 and 17.7 percent minimum international standard and the level at the end of the corresponding period of 2012, respectively.
However, the report shows that the total credit to the priority sectors of the economy, comprising agriculture, solid minerals, exports and manufacturing, was N3,266.2 billion at the end of the first half of 2013, accounting for 37.2 percent of the total, compared with 37.1 percent in the corresponding half of 2012. The less priority sectors (real estate, public utilities, transport and communications, finance and insurance, and government) accounted for 40.2 percent of total claims on the private sector, while the unclassified sectors accounted for the balance.
According to the report, short-term maturities continued to dominate the credit market in the first half of 2013. Outstanding credits maturing within one year accounted for 57.1 percent, compared with 57.4 percent at the end of the second half of 2012. The proportion of the medium-term (≥1yr and
Similarly, deposits below one year constituted 96.9 percent of the total, of which 75.9 percent had maturities of less than 30 days. Long-term deposits constituted only 3.1 percent, slightly higher than the 2.6 percent recorded at the end of the second half of 2012. The near-absence of long-term deposits continued to constrain the ability of banks to create long-tenored risk assets crucial for economic development.
The AMCON continued to discharge its function as a multipurpose resolution vehicle empowered to purchase toxic assets from banks and inject needed funds through the issuance of appropriate securities. At the end of the first half of 2013, the Corporation had a total bond liability of N5, 410.0 billion (face value), the first tranch was due on December 31, 2013.
During the first half of the year, the Corporation commenced the process of divestment from Enterprise Bank, Keystone Bank and Mainstreet Bank, with the placement of a public notice in the dailies; and the engagement of a financial adviser to oversee the process of divestment from Enterprise Bank. Furthermore, a Resolution Cost Trust Fund Deed, which would replace the existing MoU on the Banking Sector Resolution Cost Sinking Fund was drawn up for execution by the CBN and DMBs during the review period. A key provision of the Deed was the increase in the annual contribution of the DMBs from 30 basis points of their total assets (per audited annual financial statements of the previous year) to 50 basis points of total assets and 33.33 percent of off-balance sheet items.
In addition, the Corporation proposed amendment to its enabling Act to the National Assembly, to include the Sinking Fund contribution and its management in the Act.