Non-performing loans have increased as commercial banks continue to increase credit in the economy due to the loan-to-deposit policy of the Central Bank of Nigeria (CBN).
The policy has been forcing banks to increase loans approved.
In an updated communique of the Monetary Policy Committee (MPC) of the CBN, published on Tuesday, it was stated that non-performing loans have deteriorated between December 2020 and February this year.
In the MPC statement, it was disclosed that the financial industry’s non-performing loans rose to 6.30 percent in February 2021 from 6.10 percent in December 2020.
During this period, gross credit increased by N5.55 billion between May 2019 and February 2021, while credit to the economy grew from N20.48 billion at December 2020 to N21.12 billion as at the end of February 2021.
The Deputy Governor of CBN, Aishah Ahmed, attributed the surge in bank credits from banks to “the success of the Loan-to-Deposit Ratio policy which also helped to moderate loan pricing.” she said.
Despite the deteriorating state of the non-performing loans, Ahmed said the financial sector is in a healthy position and continues “to be resilient supporting the economy recovery, whilst sustaining sound financial soundness indicators.”
While buttressing her point, the MPC member said Banking industry capital adequacy and liquidity had increased, “Banking industry capital adequacy increased to 15.20 per cent in February 2021 from 15.10 per cent in December 2020 as a result of capitalization of year�end earnings.
“Liquidity remained robust at 40.50 per cent, which is above the prudential minimum of 30.0 per cent whilst the Bank also has at its disposal sufficient Cash Reserve Requirement buffers to provide liquidity backstops to the industry as required.” Ahmed said in her note.