Findings by AllNews showed that despite the COVID-19 pandemic knocking off revenue sources of individuals and companies, increasing the possibility of a hike in Non-Performing Loans (NPLs), fear of sanction by the Central Bank of Nigeria (CBN) forced most Nigerian banks to maintain a high rate of loan given to customers.
The Nigerian banking industry-approved over NGN19.52 trillion loan to their customers as at September ending of 2020, higher than the NGN17.69 trillion loan customers obtained in the corresponding Q3 2019, according to thirteen financials examined by AllNews.
While two banks reduced the amount loaned out within the period, the reduction didn't prevent the industry from growing its loan to customers when both corresponding quarters were compared. It was also observed that none of the Big Five, known as the FUGAZ (First Bank, UBA, GTBank, Access Bank and Zenith Bank), reduced loans approved to customers.
Note that the Q3 (third quarter) is a period of three months, which falls between July to September. The calendar year consist of four quarters; January to March (Q1), April to June (Q2), July to September (Q3), and October to December (Q4), while September ending period is also nine months period.
It was gathered that five banks; Ecobank, Access Bank, Zenith Bank, UBA and First Bank, respectively awarded the highest loans to customers during the period under review, while two banks; Sterling Bank and Ecobank reduced their loans to customers.
Seven banks; Ecobank, Access Bank, Zenith Bank, UBA, First Bank, GTBank and Fidelity Bank surpassed the trillion naira loan mark. Meanwhile, six banks; Wema Bank, Unity Bank, Union Bank, Sterling Bank, FCMB and Stanbic IBTC loans stood at the billion naira mark for the period ended September 2020.
Note that while the banking industry gave out NGN19.52 trillion loan to customers, as at September 2020, AllNews understands that majority of the credit went to companies, while individuals accounted for minor part of the loans approved. Oil & Gas sector, as well as the manufacturing sector, are major beneficiaries of the credit coming from Nigeria's banking industry.
AllNews gathered that despite reducing its loan figure, Ecobank led the pack in terms of credit obtained by customers in the banking industry as at September ending, capping the period with NGN3,29 trillion, an amount higher than the NGN3,38 trillion reported by Ecobank as loans during the corresponding period of 2019.
Access Bank was second on the table, as it recorded NGN3,08 trillion as loans and advances obtained by customers across its branches within the country, surpassing the NGN2,91 trillion the lender offered during the same period last year September ending.
Zenith Bank took the third spot with NGN2,71 trillion loans awarded for the period under review, surpassing the NGN2.04 trillion Zenith Bank allowed its customers to obtain in the corresponding period of 2019 September ending.
UBA was fourth on the list of five having recorded NGN2,38 trillion as loans obtained by its customers within the period under review. This credit was higher than the NGN2,06 trillion Ecobank recorded during the nine months period which ended with September.
First Bank completed the list of highest loans to customers following a NGN2,05 trillion loan obtained by its account holders as at September ending 2020, taking a step higher than the NGN1,85 trillion it gave to its customers during the same period in 2019.
This is a list of banks that didn't make it into the top five highest loan approval within the period under review.
GTBank awarded NGN1,56 trillion loan to its customers during the nine months period ended September 2020, increasing its loans to customers from the NGN1,50 trillion the company allowed its customers obtain as at September ending 2019.
Fidelity Bank came next with NGN1,33 trillion as loans to customers as at September 2020, surpassing the NGN1,12 trillion loan customers withdrew from Fidelity Bank during the same period last year.
FCMB awarded NGN793,1 billion to the company's customers during the period under review, rising above the NGN715,8 billion FCMB granted as loan to its account holders during the corresponding period of September 2019.
Union Bank approved NGN627,3 billion as loan to the company's customers as at September this year, a figure higher than the NGN550,6 billion Union Bank gave out as loan to customers during the same period in 2019.
Sterling Bank reduced its loan to customers according to the financials seen by AllNews, dropping to NGN610,7 billion as at September 2020, which is lower than the NGN618,7 billion Sterling Bank handed out as loan during the corresponding period of 2019.
Stanbic IBTC was behind Sterling Bank despite not reducing its loan to customers during the period under review, as customers obtained NGN572,5 billion, as against the NGN535,1 billion Stanbic IBTC offered as at September 2019.
Wema Bank came next, after awarding NGN359,7 billion loan to customers as at September 2020, rising above the NGN289,2 billion the lender's customers obtained during the corresponding period last year.
Unity Bank offered the lowest loan to customers in the banking industry so far, as the lender approved NGN131,8 billion loan to customers as at September ending, rising above the NGN104,0 billion customers obtained during the same period in 2019.
Despite being forced to run a skeletal operation due to the COVID-19 pandemic - which compelled the government to announce a nationwide lockdown in March ending, for about two months, before the economy fully reopened four months after, the banking industry grew their loans to customers in order to avoid sanction from Central Bank of Nigeria (CBN).
The CBN, as regulator of the banking industry, had introduced sanctions last year for banks that didn't meet 65% Loan-To-Deposit ratio. The CBN punish banks that fail to meet target by deducting from banks earnings, reducing the amount available to banks to invest and run operation.
This is a factor that propelled eleven banks out of thirteen to increase their loans to customers despite the economic downturn that rocked the second quarter (Q2) of 2020, cause failure to meet the target will lead to CBN penalising the banks through a levy or additional Cash Reserve Requirement (CCR) equal to 50% of the lending shortfall of the target.
CBN stated that since implementing the sanction, banks have increased their approval of loans to customers; individuals and businesses, most especially the Real sector, which was the motivating factor of the sanction. The CBN said banks were avoiding the Real sector due to its high risk, but offering other sectors with little or no risk loan.
The Loan-To -Deposit ratio of 65% increases the risk faced by banks, as economic downturn could cause the banks Non-performing ratio to rise. In order to avoid CBN sanction, banks are reducing their lending rates to encourage borrowings amongst their customers.
Now, banks have to borrow businesses operating in the Real sector where there's a high risk, failure to do so could lead to a decline in their bank reserve. Example of the impact of the LDR is GTBank, which had to increase its loans to customers despite its NPLs increasing to NGN106.6 billion as at September 2020, against the NGN102.4 billion of the same period in 2019.
Despite the rise in NPLs, GTBank still increased its loans to customers, and currently, GTBank is behind the 65% LDR, as the lender is at 47.51% LDR as at September 2020, according to AllNews findings. In the whole of 2019, GTBank was only able to achieve 56.90% Loan-to-Deposit ratio.
For Sterling Bank, it's Non-Performing Loan is also on the rise, as the company reported 2.92% NPL as at September 2020, rising above the 2.20% Non-Performing Loan Sterling Bank recorded during the same period last year; this might have informed the decision to reduce its outgoing loan in the nine months of this year.
The CBN LDR policy will weaken the balance sheet of Nigerian banks, as they are caught between the devil and the deep blue sea, posing a lose-lose situation for Nigerian banks, which either reduce their balance sheet by offering more loans or having CBN seize more of their liquidity - and with COVID-19 lockdown, as well as fluctuating oil price, rise in NPL is almost inevitable.
The International Monetary Fund (IMF) had also countered the policy, but there are media reports that CBN plans to increase the LDR to 70%, as the regulator stated that NPL dropped in 2019. The report of an increase in LDR first circulated late last year, that the CBN is looking at an increase.
However, with the impact of COVID-19 pandemic, uncertainty has surrounded the report, as an increase could further weaken the banks' balance sheet. Although, the Nigerian Bureau of Statistics (NBS), stated that NPL dropped by 3.5% in Q3 2020 when compared to Q2 2020.
But Non-Performing Loan increased by 6% at Q3 2020, when compared to the corresponding period of Q3 2019. NBS reported that during the First Half of this year, NPLs rose by N152.4 billion, from N1.059 trillion recorded in December 2020 to N1.212 trillion in June 2020, across Nigerian banks; this represents a 14.38% rise in six months (January to June/H1).
Oil & Gas, Construction, Commerce & Trade are major drivers of the Non-Performing Loan experienced by Nigerian banks, while agriculture, transportation, power & energy, and education recorded a decline in their NPLs to banks within the same H1 period.