The impacts of the severe global unstable economy and dwindling oil prices has reflected in Ecobank Transnational Incorporated (ETI) and Unity Bank Plc’s report for 2016 which yielded N556.65 billion bad Loans (Non-Performing Loans) .
The breakdown of the data are follows: while ETI bad loans dropped by 1.96 per cent from N191.27 billion in 2015 ($967 million) to N187.5 billion in 2016 ($948 million).
That of Unity bank, showed bad loans appreciated by 53 per cent to N369 billion from N241 billion in 2015, to highlight looming crisis for the bank.
The management of ETI explained that as part of a clear and well defined non-performing loan strategy, during the fourth quarter of 2016 loans with a book value of N52 billion or $263 million were transferred to a separate entity hereinafter referred to as Resolution Vehicle.
The pan-Africa bank said, “The establishment of the Resolution Vehicle will help to effectively manage capital, enhance a quick turnaround of our business in Nigeria and help to improve transparency of the Non-Performing Loans portfolio in Nigeria.
However, ETI and Unity Bank have breached the Central Bank of Nigeria (CBN) five per cent Non-Performing Loan (NPL) benchmark.
Specifically, Unity Bank’s NPL closed 2016 at 97 per cent from 77 per cent in 2015 while ETI, NPL moved from 8.2 per cent in 2015 to 9.6 per cent in 2016. Ecobank Nigeria NPL ratio closed 2016 at 9.1 per cent.
ETI said it has taken a strategic step to reduce the high NPL ratio through the NPL Resolution initiatives that have been embarked upon.
Those steps include, “commenced the process of NPLs Sale initiative with initial application to the Central Bank of Nigeria, following which regulatory consent was received in March 2016. The Bank is currently at an advanced stage in the resolution of the NPLs challenges that are endemic in its credit portfolio.
On its part, Unity Bank explained that the exercise has achieved, “Proper due process of financial due diligence through a reputable international audit firm and legal due diligence by a renowned legal firm in accordance with the directive of the Loan purchaser.
“Execution of Transaction Implementation Agreement (TIA) and Sale and Purchase Agreement (SPA) in December 2016
“As at February 2017, a “good faith” payment by the loan purchaser has been received representing a percentage of the initial consideration to the Bank in respect of the transaction and execution of Completion Timetable for the final Loan Rights Transfer from the Bank to the purchaser with closure date in the second quarter of 2017.”
The Bank maintained an actively managed capital base to cover risks inherent in the business and meet the capital adequacy requirements of the local banking supervisor.
According to the bank, “The adequacy of the Bank’s capital is monitored using among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (BIS rules/ratios) and adopted by the CBN in supervising the bank. During the past year, the Bank had complied in full with all its externally imposed capital requirements.
“The Bank had serious discussions with several private equity interests with the view to injecting substantial capital into the system. Due diligence has largely been concluded by all parties and the Bank has received several Binding offers that are currently being reviewed and considered. It is expected that this exercise will be concluded by the second quarter of 2017.
“NPLs sales proceed with initial consideration payment of N6.43billion and cash flow waterfall of circa. N60 billion over the 5-year period. The cash flow will impact on capital positively over the period which will benefit the entire shareholders of Unity Bank (both existing and potential investors).
The Nigeria Deposit Insurance Commission (NDIC), had raised concerned about the rising tide of NPLs in the banking system.
The NDIC said 25 Deposit Money Banks (DMBs)had total loans portfolio of N18.53 trillion out of which N1.85 trillion or 10 per cent were NPLs where N740 billion or 40 per cent constituted Insider/Directors related loans.