Published On: Wed, Aug 10th, 2016

CBN Grants Banks Waiver To Write-Off Bad Loans

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By Sadiq Umar – The Central Bank of Nigeria (CBN) has granted all banks in the country permission to write off non-performing loans this year, attributing the decision to the prevailing economic challenges.

Governor, Central Bank of Nigeria

Governor, Central Bank of Nigeria

CBN’s Director, Banking Supervision, Tokunbo Martins made the disclosure in a response to Commercial Banks’ request seeking to delist non-performing loans from their balance sheet, adding however that this will be a one-off permission that will only apply until the end of this year.

“In view of the current macro-economic challenges … the CBN hereby grants a one-off forbearance, this year 2016, to banks, to write-off fully provided NPLs without waiting for the mandatory one year,” the bank said in a circular dated July 28 and published on its website on Tuesday.

Section 3.21 (a) of the Prudential Guidelines compels banks to capture non-performing facilities in its report.

“The CBN acknowledges the request by banks to amend the requirements of S.3.21 (a) of the prudential Guidelines, which mandates banks to retain in their records, fully provided Non-performing Loans (NPLs) for a period of one year before write-off,” the circular read.

“The CBN has no intention to repeal the provision of the above mentioned section of the guidelines. In view of the current macro-economic challenges however, the CBN hereby grant a one-off forbearance, this year 2016, to banks, to write-off fully provided NPLs without waiting for the mandatory one year.”

This is coming at a time when major banks in the country have been filing for late disclosure of financial statements.

Pressure has been building on the country’s banks, whose loan books have been hit by Nigeria’s shrinking economy, plunging currency and foreign exchange shortages following the slump in oil prices.

Banks had asked the central bank to amend its rule requiring them to keep non-performing loans on their books for one year even after they have been fully provided for.

Non-performing loans are expected to jump to 12.5 percent of total loans this year, up from the central bank’s target of 5 percent at the end of last year, as banks suffer a hangover from an oil industry credit boom that ended abruptly in 2015, according to Augusto & Co, Nigeria’s main rating agency.

Last week, Diamond Bank said its non-performing loan ratio rose to 8.9 percent by the first half, but expects it to fall to 7.5 percent by year end.

Rival FCMB expects to restructure 25 percent of oil and gas loans in the third quarter after it restructured 50 percent of those loans last year.

 

 

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