The value of the Non-Performing Loans (NPL) issued by Deposit Money Banks to operators in the Agriculture, Construction, and Education among others hit N143.76 billion as at the end of September 2019. Data obtained from National Bureau of Statistics revealed.

The five major sectors that witnessed a rise in NPLs include construction, education, agriculture, government, and management and remediation activities.

The report stated that the NPLs in these sectors rose from N127.32 billion in Q3 2018 to N143.76 billion in September 2019. This represents an increase of N16.44 billion.

NPLs in Construction sub-sector tops 

Analysis of the banking sector data shows that NPLs in the construction sub-sector rose from N72.34 billion in Q3 2018 to N81.60 billion. This means NPLs in the construction sectors rose by N9.25 billion within the period.

  • Education sector ranks second on the chart with N8.69 billion NPLs, a N4.22 billion rise in one year.
  • The agriculture sector also recorded a rise in NPLs, as NPLs in the sector rose from N48.33 billion in September 2018 to N49.96 billion as at September 2019. This means NPLs in the sector rose by N1.63 billion.
  • Other sectors that recorded increase in NPLs within the period include government (N1.28 billion) and management and remediation activities (N2.24 billion).

In an earlier article published on Nairametrics, it was disclosed that the Central Bank of Nigeria’s (CBN) drive to solve liquidity challenges in Nigeria’s financial sectors paid off as banks recovered N738.15 billion NPLs from the Oil and Gas sector.

The report added that the NPL in the oil and gas sector dropped from N1.002 trillion in Q3 2018 to N264 billion in Q3 2019. This means NPLs in the sector dropped by N738.15 billion.

Other sectors that recorded big drop in NPLs include Power and Energy (N116.01 billion); Real Estate Activities (N74.02 billion); Manufacturing (N43.67 billion); Information and Communication (N39.40 billion), and Finance and Insurance (N34.42 billion).

CBN’s LDR policy driving NPLs? 

The rise in NPLs in some sectors may partly affirm concerns of analysts and industry stakeholders that the move of the apex bank to raise Loan-to-Deposit ratio (LDR) to 65% might increase the level of non-performing loans in the economy.

Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr Bismarck Rewane, stated that lenders would “struggle” in their bid to comply with the directive.

Rewane stated“The banks have not opened the credit spigot and borrowers cannot wait to draw down the loans on the one hand.

“Investors and savers are looking desperately for alternative asset classes. This is reducing the marginal propensity to save whilst increasing the marginal propensity to consume and import. 

“The prognosis is that either we see a surge in credit and growth or we witness outflows from the system. In all cases, the financial sector is in for an effervescent year-end for 2019 and an interesting 2020.”

NPLs represent one of the most serious challenges that affect liquidity challenge in the Nigerian banking sector. Bank loans are regarded as risk assets because the monies advanced as loans by the banks belong to depositors. The risk arises in the event of massive defaults and makes it difficult for depositors’ monies to be available on demand.

While CBN may raise LDR to 70% as recently mooted by the bank, sub-sectors in the real sector may end of driving NPLs in the economy as the latest data suggest.