With the rising loan defaults by customers owing to the biting economic recession, Five Tier-Two commercial banks comprising Sterling Bank Plc, Diamond Bank and First City Monument Bank Plc have provided N117.4 billion for bad loans in first half of 2017.
The other two commercial banks are Union Bank of Nigeria Plc and Wema Bank Plc.
The amount which is higher than N106 billion provided by the five banks for bad loans in first half of 2016 confirms the assertion of the International Monetary Fund (IMF) that bad loans had increased by 15 percent in the industry.
Total bad loans in the industry in 2016 according to the Nigeria Deposit Insurance Corporation (NDIC) was N1.85 trillion.
Of the five commercial banks, Wema and Diamond Banks provision for bad loans increased significantly, suggesting their toxic loans could have risen while First City Monument Bank (FCMB) and Union Bank of Nigeria bad loan provision dropped.
Investigation by InsideBusiness Online shows that Wema Bank provision for bad loan in half year of 2017 increased significantly by 43.7 per cent to N88 million from N61 million in half year of 2016.
In a statement, the Chief Executive Officer, Wema bank, Mr. Segun Oloketuyi, said, “In the first half of the year the Bank operated, in an uncertain and challenging domestic economic environment.
“While we recorded notable improvements in the second quarter of the year, especially around foreign currency management, the execution of fiscal policies and the continued tight monetary policy impacted on consumers’ disposable income and invariably on banking sector performance.”
He said the bank commenced the second half of the year with cautious optimism, especially around the implementation of the needed economic reforms and execution of the 2017 budget to ensure stimulation of economic growth.
“The expectation is that the country will exit recession in the 2018 financial year, but this will be dependent on a diligent execution of the reform programme,” he said.
However, Diamond Bank provision for bad loans closed the half year at N20 billion, an increase of seven per cent over N18.9 billion in half year of 2016 while Sterling Bank provision gained 11.4 per cent to N4billion as against N3.6 billion recorded in half year of 2016.
FCMB and Union Bank of Nigeria provision for bad loans dropped by 26.1 per cent and 38.8 per cent respectively.
FSDH Merchant Bank Limited in its Nigerian Banking Industry Report said, “The crash in crude oil prices and oil production, and the attendant slowdown in economic activities in Nigeria affected the performance of the banking industry in the last two years.
“A number of loan customers, both individuals and corporates are finding it difficult to meet their loan obligations leading to rising loan loss provisioning for the banks. This is also hampering the banks’ ability to create new loans. Nigerian banks are changing strategies in order to deal with the current economic challenges in order to satisfy all stakeholders.
“Despite the recent challenges, there are huge banking opportunities in the Nigerian economy. Nigerian banks need to develop more constructive strategies to increase their share of the non-oil sector in their loan portfolios.