Agusto&Co: Banks cancelled bad loans worth N1.9trn in four years

Agusto & Co, a credit rating agency, says commercials banks and merchant banks have cancelled bad loans worth N1.9 trillion since the 2015/2016 recession.

In its ‘2020 Banking Industry Report’ released on Sunday, the agency said the write-offs were driven by the weak macroeconomic climate and the introduction of the international financial reporting standards 9 (IFRS 9) accounting standard in 2019.

Agusto & Co said its assessment of the condition of the banking industry was based information provided in the approved annual reports of 19 commercial banks and five merchant banks as of December 31, 2019.

“These banks collectively accounted for an estimated 98 percent of the industry’s total assets as at the same date and provide a good representation of the industry,” it said.

“In the last four years, following the 2015/2016 recession, the Nigerian banking industry has written off a minimum of N1.9 trillion of impaired loans from its loan portfolio.

“This volume of write-offs has been driven by the weak macroeconomic climate and the introduction of the international financial reporting standards 9 (IFRS 9) accounting standard in 2019.

“In the wake of the unprecedented COVID-19 pandemic, the industry’s asset quality is further threatened given significant exposures to vulnerable sectors.”

Acknowledging the palliative granted to banks by the Central Bank of Nigeria which allows banks to restructure loans, the agency said the loan restructuring activities will help “moderate the anticipated level of asset quality deterioration in the short term”.

According to Godwin Emefiele, governor of the Central Bank of Nigeria, banks have restructured loans worth N7.8 trillion for 35,640 customers since the pandemic began.