CBN to allow banks write-off bad loans in 2016

The Central Bank of Nigeria (CBN) is to allow commercial banks write-off their bad loans this year, due to continuous pressure on some of them whose loan books have been hit by the shrinking economy, plunging currency and foreign exchange shortages following the slump in oil prices.

This was said to be part of the move by the CBN geared towards helping the lenders who had already made provisions for bad loans clean up their balance sheets.

In a circular issued by the apex bank on Tuesday, which was obtained by our correspondent, the CBN has granted the banks permission to write off these bad loans but this will be a one-off that will only apply until the end of 2016.

“In view of the current macro-economic challenges, the CBN hereby grants a one-off forbearance, this year 2016, to banks, to write-off fully provided NPLs without waiting for the mandatory one year,” the CBN stated in the circular.

Non-performing loans are expected to jump to 12.5 percent of total loans this year, up from the central bank’s target of 5 percent at the end of last year, as banks suffer a hangover from an oil industry credit boom that ended abruptly in 2015, according to Augusto & Co, Nigeria’s main rating agency.

Last week, Diamond Bank said its non-performing loan ratio rose to 8.9 percent in the first half, but expects it to fall to 7.5 percent by year end.

Rival FCMB expects to restructure 25 percent of oil and gas loans in the third quarter after it restructured 50 percent of those loans last year.

Asset Management Corporation of Nigeria (MACON), which was set up in 2010 to absorb bad loans during the country’s financial crisis, has said it has stopped buying non-performing loans (NPLs) and is now focused on loan recoveries.

The bad loans manager, noted that it’s has said the decision is to allow banks to write-off some bad loans this year.

It would recall that commercial banks had asked the central bank to amend its rule requiring them to keep non-performing loans on their books for one year even after they have been fully provided for.

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Meanwhile, the nation’s apex bank recently shored up mid-tier Skye Bank with a loan and replaced its management after its capital fell below levels required by regulators.

The central bank has also told banks to set aside extra capital buffers against their dollar loans immediately in the wake of a 40 percent fall in the value of the naira.