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The Central Bank of Nigeria, yesterday, said it is closer to
achieving its target ratio of less than 5 percent of nonperforming loans in the
country’s financial sector, with the successful acquisition of all bad debts of
the 21 banks by the Asset Management Company of Nigeria.

The bank’s deputy governor, Banking Supervision, Sam Oni, told
journalists at the end of the 302nd meeting of the Bankers’ Committee in Abuja
that “the purchase of all nonperforming loans of all the banks has effectively
restructured the balance sheets of all the banks, making them healthy and
competitive.” “The quality of the banks’ balance sheets is very high,” he said.

“Our target is to ensure that by the time the second round of
the exercise is completed, the nonperforming loans ratio in the country’s
financial sector should not exceed five percent. The CBN is encouraging banks
to fully charge off all those nonperforming loans that have been fully
provisioned to make their balance sheets very healthy and competitive. This is
a good development to further de-risk the financial system, make it stable and
ensure that the confidence that has been restored is sustained, to propel the
industry to greater heights.”

During the first round of the purchase, the asset company
restricted its attention to margin lending by the intervening banks from where
acquired over N1.036 trillion bad debts. However, in the second phase of the
exercise, the company issued additional N500 billion (about $3.3 billion) in
zero-coupon bonds to clear up the remaining bad debts by March 31.

The committee, which also reviewed progress by the various
interventions programmes by the Central Bank to strengthen the economy,
indicated that the percentage contribution, in terms of loans to the
agricultural sector to total industry loans, has doubled from 1 percent to more
than 2 percent in recent times. This was attributed to the commitment
demonstrated by all the banks to be more supportive to the growth of the real
sector, through the establishment of an agriculture desk to handle agricultural
loans in line with an action plan established two years ago for economic
development.

The criticisms

Two years ago, the banks came under serious criticisms that they
were not doing enough to support the real sector, particularly those critical
to the growth of the economy, particularly agriculture, transport, aviation,
railway, power as well as small and medium enterprises. Managing Director,
First City Monument Bank, Ladi Balogun, said that the industry would witness
rapid growth in banks’ participation in lending to the agricultural sector once
the central bank commences the Nigerian Incentive-based Risks Sharing System
for agricultural lending in the country.

Mr Balogun said several key projects have taken off in the power, and
transport sector as well as the SMEs through the various intervention funds
channelled through the Bank of Industry, in line with the objective of the
banking sector to support the real sector and ensure that those critical to the
growth of the economy received adequate funding. On the industry shared service
projects, indications were that significant progress in the various areas,
including industry-wide cash handling and electronic banking services as well
as IT standardization system by encouraging more of electronic banking, to
facilitate greater efficiency and help manage costs as well as reduce the use
of cash in transactions.