The Central Bank of Nigeria (CBN) has stated that the construction sector’s loan default was to blame for the surge of non-performing loans.
This is according to the Central Bank of Nigeria (CBN) August Economic Report.
The construction industry has been pressured by the impact of inflation, the cost of building materials and the scarcity of foreign exchange.
What the CBN said
The report stated that the ratio of Non-Performing Loans (NPLs) to the industry total outstanding loans, deteriorated to 6.0 per cent at end-August from 5.4% at end- July. The ratio was above the 5.0% regulatory threshold by a 1.0% point.
“The rise in NPLs was due to poor outturn of construction sector non-performing loans, owing to the rise in the prices of building materials, which complicated the ability contractors to service debt obligations,” the report stated.
The apex bank stated that the banking system remains safe and sound, as the financial soundness indicators reveal general stability, despite marginal declines in August.
According to the report the Capital Adequacy Ratio (CAR) fell by 0.01 percentage point to 15.21% at end-August, relative to end-July.
“This decline was due to an increase in credit, resulting in the rise of total risk-weighted assets. CAR exceeded the regulatory benchmark of 10.0 per cent for banks with national authorisations and 15.0% for banks with international authorisations. The liquidity ratio, at 63.4% in August, rose by 0.4 percentage points over the level in July and was also above the 30.0 per cent benchmark. The development was due to an increase in the stock of liquid assets held by banks,” the report added.