Nigerian Banks' Non-performing Loan Percentage Has Risen to 5.1%, Above the Prudential Limit, the World Bank Warns.

The World Bank has indicated that the capital buffers within the banking system have diminished. Furthermore, it has been reported that non-performing loans (NPLs) in Nigerian banks have surged to a concerning 5.1%. This information was disclosed in the Nigeria Development Update released by the international financial institution. The World Bank stated, “the ratio of NPLs to total loans increased by 0.6 percentage points to 5.1 percent in the first quarter of 2024 compared to the same period in 2023. This figure slightly exceeds the prudential threshold of 5.0 percent.” Additionally, the World Bank highlighted the erosion of capital buffers in the banking sector. “The capital buffers of the banking system have been compromised due to elevated inflation rates, significant depreciation of the naira, and the rise in the NPL ratio.” The capital adequacy ratio for the banking system stood at 11.1 percent in the first quarter of 2024, a decline from 14.2 percent in the first quarter of 2023. The report also referenced the case of Heritage Bank, which resulted in the revocation of its license by the Central Bank of Nigeria. “In June 2024, the CBN revoked Heritage Bank's banking license, citing inadequate financial performance and a situation that posed a risk to financial stability.” “The Nigeria Deposit Insurance Corporation (NDIC) was subsequently appointed as the liquidator in accordance with Nigeria’s bank resolution framework. At the time of its failure, Heritage Bank had 2.3 million depositors, with 99 percent of them holding deposits below the insured limit of NGN 5 million, total deposits amounting to NGN 650 billion, and a loan portfolio of NGN 700 billion.” The issue of loan quality among banks remains a significant concern in Nigeria. Recently, prominent lawyer Femi Falana, SAN, remarked that commercial banks in Nigeria have failed to recover over N5.4 trillion in loans. “AMCON is owed N5.4 trillion by affluent individuals. A few years ago, commercial banks faced potential collapse due to toxic loans acquired by members of the ruling elite.” In order to avert the looming economic crisis, the Federal Government established the Asset Management Corporation of Nigeria (AMCON) to acquire loans amounting to trillions of Naira, which were made available by the Central Bank of Nigeria (CBN). He noted that AMCON has struggled to recover loans totaling N5.4 trillion from approximately 370 corporate entities. Non-performing loans refer to those for which the borrower has failed to fulfill their payment or servicing obligations within the agreed timeframe.