Nigeria’s deposit money banks’ desire to remain competitive may have yielded some accrual positive results for them, going by the various products offerings such as electronic products they have been churning out to meet consumers’ demands.
However, all was not totally well for the sector going by the huge non-performing loans they currently face. Indeed, not less than three out of the four largest commercial bank in the country have recorded drop in their Loan-To-Deposit Ratio (LTD) half -year of 2017 (H1), due to macro- economy challenges in the country during period considered.
The loan-to-deposit ratio, as its name implies, represents the ratio of a bank’s total outstanding loans for a period to its total deposit balance over the same period. LTD, therefore, can be described as a commonly used statistic for assessing a bank’s liquidity by dividing the bank’s total loans by its total deposit.
But if the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements, and conversely, if the ratio is too low, the bank may not be earning as much as it could be.
However, as the Tier-1 banks remained to be the driving force behind credit to real sector of the economy, the subsequent drop in Tier-1 banks include Zenith Bank Plc, First Bank of Nigeria Holdings Plc Guaranty Trust Bank Plc (GTBank); while United Bank for Africa Plc (UBA) loan-to-deposit increased marginally.
The Central Bank of Nigeria’s (CBN’s) decision to hold its Monetary Policy Rate (MPR) at 14 per cent in 2017 has been an important factor behind the slow but steady recovery of the nation’s economy.
But, it has had a positive, as well as a negative impact on the interest banks, charge customers on loan granted. Findings by our correspondent showed that a combination of prudence shows that Tier-1 banks loan-to-deposit ratio is average at 60 -70 per cent in the half year of 2017.
First Bank of Nigeria Holdings thus recorded loan-to-deposit ratio of 74.50per cent in H1 2017 from 77.1 per cent recorded in 2016; while UBA’s loan-to-deposit moved from 61 per cent to 64 per cent in H1 2016.
This means that First Bank of Nigeria has an extremely risk-averse business model that focuses almost entirely on traditional banking services, and its regional focus also supports its high loan-to-deposit ratio.
First Bank of Nigeria Holdings has more outstanding deposit and loan to customers better than other Tier-1 banks, which is why it enjoys a loan-to-deposit ratio of 77.1 per cent in 2016 financial year despite the difficult but improving market condition.
On the other hand, the two tier-1 banks– GTBank and Zenith Bank– have significant custody banking services, which require them to keep more of their deposits liquid. For the half year of 2017, GTBank loan-to-deposit dropped from 75.30 per cent in 2016 to 73.70 per cent in H1 2017 while Zenith Bank loan-to-deposit closed H1 2017 at 66.2 per cent from 67.8 per cent recorded in 2016.
Zenith Bank has seen the lowest change in this figure recently, as its geographically diversified business model has allowed it to leverage its presence in key developing nations to grow both deposits as well as loans at roughly the same rate.
Meanwhile, virtually all the banks listed on The Nigeria Stock Exchange (NSE) recorded a whopping N230.6 billion Non-Performing Loans (NPLs) during the same period under review, which was also linked to the economic challenges, owing to the unpaid debt by bank customers.
However, latest Fitch ratings has affirms Nigeria’s sovereign ratings at B+; negative outlook, saying, Nigeria, the Africa’s largest economy ratings were supported by large, diversified economy, significant oil reserves, net external creditor position, among other factors.
But, looking at commercial banks’ N230.6bn bad loans in half -year (H1) 2017, it showed that the amount was higher than N76.5 or 3.4 per cent from N222.9bn provided by these 13 banks for bad loans in H1 2016 and confirms macro economy challenges; and banks’ prudential provision for 9mobile, the mobile operator, formerly known as Etisalat Nigeria.
According to information gathered by our correspondent, both lenders made huge provision for their 9mobile loans that went bad that reflected in their half year results.
Even though the latest National Bureau of Statistics (NBS) Gross Domestic Product’s (GDP’s) growth rate after contracting for fifth consecutive period showed that the Africa’s largest economy has exited its worst recession in 29 years, Managing Director, Highcap Securities Limited, Mr. David Adonri, said that the country’s economic downturn has impacted on loans provided by banks.
He said: “As a result of recession this year, bad loans in the banking sector have increased because companies that borrowed those loans have failed to pay back.
Banks are doing the right thing by making provision for these bad loans.” “Since those loans are nothing performing; and it is doubted if those loans can be recovered, banks are forced to charge the losses from their profit.
If those loans are recovered in future, they will be written back as profit. “The rate at which loans have become delinquent is much higher now because of the effect of recession on earnings of enterprises that have borrowed from banks.”
He noted that as economy moves out of recession, some of those delinquent loans would start performing; and it is expected that the affected banks would rewrite them into their profit margin.
