Unfavorable Macro Environment Pushes Nigerian Banks’ Impairments to N1.16trn

It’s increasingly becoming worrisome that Nigerian big banks have written off bad loans with impairments, which laid bare the susceptibility of lenders to unfavorable macroeconomic conditions characterised by heightened inflationary pressure and higher finance costs.

However, spiraling loan loss expenses which offset gains from net interest income are not deleterious to banks’ bottom line (profit), thanks to a huge foreign exchange revaluation loss.

Data gathered by MoneyCentral shows the largest listed banks collectively incurred N1.16 trillion in impairment charge for credit losses on loans in December 2023, which represents a 148.78 percent uptick from 2022’s N466.78 billion.

A breakdown of industry figures shows loan loss expenses were N275.21 billion in 2021; 2020, N254.30 billion; 2019, N85.16 billion; 2018, N134.04 billion; 2017, N389.92 billion, and 2016, N437.21 billion.

“I think banks are just using the huge foreign exchange gains to make adequate provisioning for impairment charges given frail macro conditions. In addition, the impact of the local currency depreciation has further amplified the expansion in their loan books,” said Gbolahan Ologunro, Associate Portfolio Manager at FBNQEST Asset Management.

“Hence it makes sense to be prudent by taking huge impairment charges to forestall the impact of delinquent loans in the future,” said Ologunro.

The International Monetary Fund (IMF) has projected that Nigeria’s economic growth will decline from 3.2 percent in 2023 to 3.0 percent in 2024.

In February 2024, Nigeria’s headline inflation rate rose to 31.70 percent, up from 29.90 percent in January 2024, marking an increase of 1.80 percent.

There has been pressure on companies who have difficulties paying interest on loans that have ballooned due to elevated borrowing costs and the banks bear the brunt of this macroeconomic uncertainty.

Asset qualities for some banks have deteriorated, but there is no cause for alarm since the central bank is positioning them to better withstand macroeconomic shocks.

It appears the regulators and sector players have learned a lot of lessons from exposure to the oil and gas of 2016 brought on by a sharp drop in crude oil price of m-d-2014.

The big banks had intensified their risk management strategies with efficient allocation of loans portfolio while avoiding risky sectors.

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