A recent World Bank report has highlighted an increase in non-performing loans (NPLs) in Nigerian banks, with NPLs reaching 5.1% in Q1 2024, slightly above the prudential benchmark of 5%. This increase of 0.6% year-over-year signals potential challenges within the banking sector and broader economic concerns.
The World Bank’s Nigeria Development Update report cautioned that a rise in non-performing loans above the 5% threshold could indicate a troubling trend for the economy, where a significant number of borrowers might struggle to meet repayment schedules. This scenario often correlates with economic downturns, affecting bank stability and liquidity.
One high-profile case referenced in the report is Heritage Bank, which lost its license due to high NPL rates. The Nigerian Deposit Insurance Corporation (NDIC) subsequently took charge as the liquidator, managing deposits of N650 billion and a loan portfolio of N700 billion at the time of the bank’s closure. Most depositors, approximately 99%, had deposits within the NGN5 million insurance coverage.
Further highlighting the broader issue, Senior Advocate of Nigeria (SAN) Femi Falana recently disclosed that over N5.4 trillion remains unrecovered by commercial banks in Nigeria. The Asset Management Corporation of Nigeria (AMCON) was created to buy off toxic loans and stabilize the economy, yet it continues to struggle with collecting debts from 370 corporate bodies, collectively owing N5.4 trillion.
Furthermore, this upward trend in NPLs may signal broader economic vulnerabilities, as Nigerian banks continue to confront high loan default rates.
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