The total volume of non-performing loan stock in banks decreased to N1.169 trillion in the third quarter of 2020, representing a 3.5% dip when compared to the second quarter value of N1.212 trillion.
This is contained in the Banking Sector Report recently released by the National Bureau of Statistics (NBS).
A non-performing loan (NPL) is a loan in which the borrower is in default and hasn’t made any scheduled payments of principal or interest for over a certain period of time.
According to the report, the General Commerce sector achieved the highest dip of 12.79% in the NPL, moving from N171.55 billion in Q2 2020 to N149.60 billion in Q3 2020, followed by the Oil and Gas sector that decreased to N238.26 billion in Q3 2020 from N268.79 billion in Q2 2020, a dip of 11.36%.
The highest surge in the NPL volume was contributed by the Transportation and Storage sector with 26.87%, with the NPL volume increasing to N46.99 billion in Q3 2020 from N37.04 billion in Q2 2020, followed by Power and Energy with 6.17%, moving from N30.81 billion in Q2 2020 to N32.71 billion in Q3 2020.
Other Key highlights
- The NPL volume as at Q3 2020 increased by 6% (YoY) compared to what it was in Q3 2019
- The Gross loan portfolio (GLP) of the banks increased by 17% in Q3 2020 compared to Q3 2019 (YoY) and 3% compared to Q2 2020 (QoQ)
- The Specific provisions rose by 3% in Q3 2020 compared to Q3 2019 (YoY) and reduced by 0.8% compared to Q2 2020(QoQ)
What this means
- With the reduction in the NPL size, one would expect that the liquidity of the banks would be buoyant enough to grant more credits to grow the economy.
- Importantly, this means good fortunes for the banks to begin making more profits, if this development can be sustained.
- Huge bad loan portfolio is the bane and nightmare of most banks. It is on record that most large banks that went under in the past was as a result of humongous toxic loans in their books, which largely squeezed their liquidity to meet depositors’ obligation as at when due.