Philip Ikeazor, the Deputy governor of Financial System Stability at the Central Bank of Nigeria (CBN), has expressed serious concerns over the increasing level of non-performing loans within the Nigerian banking sector.
Recent personal statements from members of the Monetary Policy Committee, published on the CBN’s website, reveal that the non-performing loan ratio in the industry has seen a worrying uptick of 0.3%, reaching 4.5%. Ikeazor highlighted that this development supports the CBN’s decision to pursue recapitalization.
During the last MPC meeting in March, Ikeazor emphasized that while the banking sector has shown resilience, with most financial indicators meeting regulatory standards, the modest rise in NPLs and a slight decline in the Capital Adequacy Ratio (CAR) underscore the importance of reinforcing the banking system.
He pointed out, “The disproportionate exposure of the oil and manufacturing sectors, coupled with their limited contribution to growth, poses challenges, especially with the continuing increase in non-performing loans. The potential impact of successive aggressive tightening measures on these sectors, given their sensitivity to interest rate hikes, could further dampen economic activities.”
Addressing the same issue, another MPC member, Lamido Abubakar Yuguda, a former director-general of the Securities and Exchange Commission (SEC), acknowledged the escalation in NPLs but noted that it still remains below the prudential threshold of five percent.
Yuguda stated, “The banking sector has maintained its stability, with key indicators meeting prudential benchmarks. The Capital Adequacy Ratio stood above 10% in February. Despite a marginal increase of 0.3 percentage points in the non-performing loans ratio to 4.5% compared to January 2024, it remains under the prudential benchmark of 5.0%. The Industry Liquidity Ratio also exceeded the minimum regulatory requirement of 30.0% at 42.7%.”
It is worth mentioning that on April 2nd, the CBN raised the minimum capital requirement for all banks operating in Nigeria.