Individual and consumer borrowing from Nigerian banks account for a meagre twelve per cent of the total loan basket of banks and the central bank may need to do more to cut the sector’s level of non-performing loans.
The size is even smaller at around five per cent of total loans for large banks according to analysts at FBNQuest Capital.
Early this week, the CBN rolled out global standing instruction (GSI) guidelines for various classes of individual accounts including savings, current, domiciliary, electronic wallets and Investment accounts in a last resort to facilitate the recovery of past due obligations by creditor banks without recourse to the borrower.
Once this platform comes online on August 1, 2020, creditor banks will be enabled to make direct debits from other deposit/investment accounts held by a loan defaulter in other participating financial institutions.
According to the analysts, “we applaud the CBN’s initiative because we see the move as a step in the right direction. However, individual and consumer related loans account for just a fraction (c.10%) of the sector’s entire loan portfolio.
“For our coverage,” said the analysts, “ the average size of the retail (individual and consumer) loan book is around 12% of the entire loan exposure. When viewed on a weighted average basis, the ratio is even lower at c.5% because the larger banks such as Access, Zenith, UBA and GT Bank account for the overwhelming share (c.79%) of our coverage’s total loan portfolio. Broadly speaking, we expect to see an improvement in the sector’s NPL ratio and overall liquidity.
“However, from a sector perspective, we believe that the impact on NPLs and liquidity will be modest.”
The analysts said, “the move will be more positive and impactful on the asset quality and liquidity ratios of tier 2 banks – such as FCMB and Stanbic IBTC- with a relatively high proportion of retail loan exposure.”
They suggested that to “achieve a more meaningful impact, the GSI should be extended to loans in the corporate segment which account for >65% of the sector’s total loan portfolio on average. “
However, we do acknowledge that there may be some complications in implementation if the GSI is extended to the corporate segment. One of such would be the determination of the pecking order / seniority structure for the implementation of offsetting loan recovery debits in a syndicated loan structure.
Following the raft of regulatory pronouncement by the CBN, Nigerian bank stocks have been hammered, shedding around -19.7% ytd (vs -10.2% NSE ASI).