NDIC Says Banks' Bad Loans Stood at N1.82trn, Bank directors, staff responsible for 40% bad loans

The Banking crisis of 2009/2010 is still very fresh in the minds of a lot of Nigerians especially when you realise how many times AMCON has been in the news this month alone.

Just yesterday, the Managing Director/Chief Executive, of the Nigerian Deposit Insurance Commission (NDIC), Alhaji Umaru Ibrahim was at the before the House Committee on Insurance and Actuarial Matters defending the corporation’s 2017 budget. In one of the exchanges, he dropped what you could consider as a bombshell.

“As at December 2016, the 25 Deposit Money Banks (DMBs) had total loans portfolio of N18.53 trillion out of which N1.85 trillion or 10 per cent were NPLs where N740 billion or 40 per cent constituted Insider/Directors related loans. This was far above regulatory threshold of 5 per cent for the DMBs.”

In fact, there were two bombshells in his revelation. The first is that Nigerian banks have a total non-performing loan of about N1.85 trillion are non-performing. Did you get that?? One trillion, eight hundred and fifty billion naira of loans are either bad or going bad already. The CBN in clause 3.17 of its Prudential Guidelines currently allows only 10% limit for NPL’s before contacting the banks. However, revised CBN circulars places a limit of 5%.

The second bombshell here is that about 40% of those loans are insider loans or what accountants call related party loans. Related party loans are loans given to directors of commercial banks and the CBN also has a limit not exceeding 10% of the bank’s shareholder’s funds, according to clause 3.2 of the guidelines.

So, what does this all mean?

Nigerian banks are expected to release their full year results in a few weeks’ time and with a likely 10% NPL ration hanging over their heads, we expect some of them to report major loss provisions. And even if they do not, they stand the risk of not paying dividends, due to another CBN directive that restricts dividends for banks with high NPL ratios. This could have potential consequences for bank stocks down the line.

A more worrying implication are the related party loans owed by bank directors. Will they be bought over by AMCON or will banks as usual simply just take provisions on them? Will some directors be asked to resign as was the case with Skye Bank?