Bad loan rises to amount paid to clean banking industry balance sheet

With Non-performing loans (NPLs) in the banking industry rising to N1.679 trillion at end-June 2016, most industry watchers are seriously worried that the amount is approximately equal to N1.7trillion paid by the Assets Management Corporation (AMCON) clean their balance sheet and save the entire industry from collapse.

This is even as a top banker from one of the new generation banks who did not want his name in print expressed concern that the zero interest loan facility approval by the International Monetary Fund (IMF) for low income countries facing financial challenges, is bugged with difficult conditionality which Nigeria will not be willing to subject its citizens to at this time.

He said the multilateral agency will be pressing for further devaluation of the Naira and fuel price hike which the government may not be willing to accept as a result of the social implication of further devaluation and another hike in fuel prices.

Managing Director, IMF, Ms Christine Lagarde over the weekend said that the board of the multilateral institution has approved a zero interest loan facility for concessionary loans for member countries facing financial challenges.

She said it's important for low-income countries to be able to actually absorb the shocks without necessarily going to the international markets or relying on bilateral lending capacity of close to a trillion dollars by extending access to bilateral borrowing agreements. The new agreements that are being signed this week will run at least through the end of 2019, and will continue to serve as a third line of defense.

Meanwhile, going by the report, titled Financial Stability Report', the most recent, which covered first half of this year, Loans that borrowers have stopped paying bac k(NPLs) in the period under review grew by 158 per cent from N649.63 billion at end-December 2015, to N1.679 trillion at end-June 2016. According to the CBN, the industry wide NPL ratio rose to 11.7 per cent in June from 5.3 per cent in December 2015, exceeding the prudential limit of 5.0 per cent.

Incidentally, the non-performing loans that AMCON purchased were worth N3.3 trillion and the bad bank paid N1.7 trillion for the loans. It Managing Director, Ahmed Kuru in a recent interview said the corporation later on, gave financial accommodation which is the money that AMCON paid N2.2 trillion to bring the net asset, value of some of the challenged financial institutions to zero.

The N1.7 trillion that "we paid for the assets of N3.3 trillion is part of our assets, different kinds of assets, while the N2.2 trillion is not backed by any asset," Kuru had said.