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MPC: Stress tests show banks’ resilient to COVID-19 crisis

CBN: 22 lenders to restructure 35,639 loans

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Stress tests on Deposit Money Banks (DMBs) in the country indicate that the industry is resilient and will survive the effects of the coronavirus (COVID- 19) pandemic as well as oil price volatility, a member of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC), Prof. Adeola Adenikinju, has said.

He disclosed this in personal statements of MPC members at the committee’s meeting last month, which were released by the CBN yesterday. According to him, while the global economy continues to grapple with COVID- 19 crisis, “The presentation by the bank’s staff on the Banking System Stability shows that the banking system remains resilient, strong and coping well under the current challenging environment.” Specifically, he stated: “The Financial Soundness Indicators (FSI) remain solid. The Capital Adequacy Ratio (CAR) and Non- Performing Loans (NPLs) ratio are trending in the right direction.

The Loan to Deposit Ratio (LDR) policy has boosted aggregate credit to the economy without impacting negatively on the NPLs ratio. Measures of bank performance like assets, deposits and credits to the economy also continue on a northward trajectory.

“Banking credit grew, albeit marginally, between May 2020 and June 2020. The increase in aggregate credit to the economy, in spite of the pandemic, suggests that the economy is responding well to current policy measures. Stress tests on the banking industry also confirms a resilient sector that is able to survive the effects of COVID-19 pandemic and volatility in the oil market.” Similarly, in her statement, the Deputy Governor, Financial Systems Stability Directorate, CBN, Mrs. Aisha Ahmad, noted that despite the global health and economic crisis occasioned by the pandemic, Nigeria’s “financial system has remained resilient albeit with regulatory support.”

She said: “Staff reports presented at the meeting show marked increase in the number of loans restructured; as at July 20, 2020, 22 banks submitted requests to restructure 35,639 loans of businesses impacted by the pandemic, representing 41.92 per cent of the total industry loan portfolio. This has partly reflected in improved industry risk profile, as Non-Performing Loans ratio declined from 6.6 per cent in April 2020 to 6.4 per cent in June 2020.”

Continuing, Ahmad said: “The LDR, Global Standing Instruction, streamlining of access to Open Market Operations securities and other complementary measures have been strong tail winds which have strengthened intermediation – via increased lending to the key sectors such as manufacturing, agriculture and consumer markets (gross credit grew by an additional N300 billion from N18.6 trillion to N18.9 trillion between end- April and end-June 2020, respectively) and lower market lending rates, which have insulated the financial system from the worst impact of the pandemic.”

Deputy Governor, Corporate Services Directorate at the CBN, Mr. Edward Lamekek Adamu, equally highlighted the banking industry’s resilience amid the coronavirus crisis. He particularly noted that: “The economy has received and continues to receive substantially higher amounts of credit compared with periods of similar crisis in the past.

“Between June 2019 and June 2020, total credit rose by N3.46 trillion (about 22 per cent), of which new credit in June 2020 alone accounted for N773 billion, up from N412.7 billion in May 2020. The number of new credits (recipients) similarly rose by about 42,000 to 93,578 from 51,700 in May. The huge credit output in the economy was underpinned by improved resilience of the banking system. “As at end-Q2, most financial soundness indicators (FSIs) performed well relative to regulatory benchmarks. In spite of macroeconomic challenges, banking industry tier one capital accounted for 87.22 per cent of the total qualifying capital at end-June 2020; capital adequacy ratio (CAR) stood at 14.96 per cent with NPLs ratio of 6.4 per cent and provision ratio of 118.9 per cent.” The MPC members, who attributed the resilience of the banking industry to CBN policies, called for more fiscal measures that would help to further cushion the impact of the pandemic on the nation’s economy.


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