The Central Bank of Nigeria (CBN) wants banks in the country to restructure 65 per cent of their loan portfolio to enable borrowers to cope with the worsening economy which resulted from falling oil prices occasioned by coronavirus (COVID-19) pandemic.
This however does not mean that the loans would be classified as non-performing, as that will drill a deep hole in banks’ vault.
Loans worth N7.8 trillion ($20 billion) to 35,640 customers are already being reorganized out of N18.9 trillion in credit across the industry, Central Bank of Nigeria Governor Godwin Emefiele said.
The central bank would be “more comfortable” if 65 per cent of loans were restructured, he said.
The central bank is allowing lenders to alter the terms of customer loans without making provisions or classifying them as non-performing after imposing a moratorium on interest charges and principal debt repayments.
Banks are at the center of Nigeria’s plans to rekindle the economy through credit and to distribute loans to farmers and manufacturers to spur local production.
A lockdown to contain the COVID-19 outbreak, a drop in oil prices, and rampant dollar shortages have dealt a hammer blow to the economy of Africa’s largest crude producer, hindering the ability of borrowers to repay their debt.
“We believe some companies will not survive the crisis so restructuring for those will simply be an exercise in hope,” Adesoji Solanke, director for frontier and sub-Saharan African banks equity research at Renaissance Capital told Bloomberg. “A prudent bank will want to be on top of monitoring cash flows” and how its customers’ businesses are doing, he said.
The ratio of non-performing loans to total credit improved to 6.4 per cent in June from 11.1 per cent a year earlier, while the industry’s average capital adequacy ratio stood at 15 per cent from 15.2 per cent previously, Emefiele said.