E-Financial
Report Raises Concerns over Health of Nigerian Banks
A number of banks in Nigeria are living on borrowed time as they struggle to recover sticky assets and pare down their loan loss provisions, according to Business Hallmark.
The report said that the banks are buried in a heap of poor quality loan assets in the guise of high none performing loans (NPL’s) and that all may not be as well with the banks as the domestic regulator, Central Bank of Nigeria (CBN), would have many believe.
Indeed, recently the international credit rating agency, Fitch, marked a down grade in the credit ratings of virtually all Nigerian banks as the agency pointed to the worsening condition of their credits.
Within the year Fitch’s analysts downgraded the outlook for four Nigerian banks from stable to negative; the banks were Zenith Bank, GT Bank, First Bank and Diamond Bank.
The problems with the banks downgraded were attributed to, ‘heightened vulnerability of capital due to downside asset quality risks’ which in simpler terms meant that these banks were finding it increasingly difficult to get back the monies that they lent to customers.
Third quarter 2017 results for nearly all the banks have been dyed in rose colour. Nine months’ results for the banks have shown profit figures glide up as the economy edges out of recession. But how real are the numbers?
Truth be told with discussions with a fair number of bankers who did not want their names put in print, the profit tally for most of the banks, ‘where beautiful Picasso replicas, as brilliant as they were; they were all fake’ said a senior manager of one of the banks with headquarters in Victoria Island, Lagos.
The banker insisted that, ‘you cannot make omelets without breaking eggs, with interest rates at double digits and manufacturers rolling in escalating debt as retailers groan in agony, how the heck does a bank make money with customers hung over a barrel?’, he asked pensively.
When it was pointed out that banks had stopped granting credit and had actually become more comfortable simply buying treasury instruments at double digit yields he agreed but noted that, ‘banks may have been able to turn a trick or two by buying treasuries over the last two years, but that is not core retail banking; it is more of an investment banking function and it still does not address the problem of proper loan loss charges against risk assets that have already been created.’
In other words most banks have made inadequate provisions for loan impairments or bad credits and have simply engaged in a number of clever accounting rouses to restructure bad loans to make them appear hale and perhaps hearty.
It is obviously difficult to establish how bad Nigerian commercial bank loan portfolios precisely are, especially as even the Central Bank of Nigeria (CBN), the sector’s chief regulator, and the Nigerian Deposit Insurance Company (NDIC) often get caught on the wrong foot as bank examiners serially underestimate impairment charges required by banks to cover their deteriorating loan assets.
This has led to independent observers classifying bank loans as a mixture of financial fact, fiction and something one analyst recently called ‘faction’, a grey area between reality and outright falsehood.
Peering through reams of recently published financial data is not likely to shed very much light on the warm matter of bank assets and capital adequacy.
The problem of poor bank loan books is not just that of the smart reclassification of bank loans by managers form non-performing to performing but also the accounting convention of using historical valuation of bank assets rather than adjustment of the assets on the books by marking to market which means that if interest rates go up the value of banks assets simultaneously go down and vice versa.
It would also mean that the increasing riskiness of bank loans when interest rates rise would be better captured on bank books when loan quality is measured as weaker when rates go up; in other words as interest rates go up bank loan quality comes down.
As lending rates have hovered between 25 and 28 per cent over the last two years, bank asset quality has taken a turn for the worse.
The CBN estimates that delinquent loans as a proportion of loans outstanding on average industry wide is about 12 per cent as against the regulatory rate of 5 per cent. But even the twelve per cent claim is disputable.
Investigations suggest a more accurate rate of double that number putting real average loan impairment ratio closer to 25 per cent or a quarter of all loans outstanding. This clearly indicates that banks would have to recapitalize operations to reduce leverage (debt to equity ratio) and build greater strength in balance sheets.
In a telephone conversion with Business Hallmark, Chidi Ajaegbu, former President Institute of Chartered Accountants of Nigeria (ICAN), noted that the challenge of bank credit assets and their current levels of equity was not dire enough to cause major worry, ‘I don’t think we have an immediate systemic problem but something must be done to ensure that we do not slide into systemic distress’. He was of the opinion that banks may need to raise their capital base in 2018 by either rights issue or Initial Public Offers (IPO’s).
Also commenting on the issue, Dr. Afolabi Olowokere of Financial Derivatives Company Limited (FDC) said it is a known fact that the relatively low capital base of banks could constitute a serious problem for such institutions anywhere in the world. ‘It is normal that the capitalisation of banks will be eroded at a time like this if you consider the huge non-performing loans which they have to provide for. I hope the banks do not suffer any shocks because they have links with one another, poor management of one could set off a contagion that hurts all’’, he said.
In his own observations Dr. Adi Bongo, economist and faculty member, Lagos Business School was of the view that the recent Fitch downgrades of local bank was a fallout of the poor macroeconomic management that started last year, adding that the banking industry suffered huge capital flight as portfolio investments that were plugged into banks during the consolidation period, began to pull out on concerns over macroeconomic direction.
He further explained that, ‘Nigeria has been performing poorly in capital importation. As money began to leave the system, banks where many portfolio investors had plunked capital, started having liquidity challenges.’ Noting that, ‘…because of the state of the economy, non-performing loans in banks have increased geometrically. The combination of these two issues has caused banks to face serious challenges, except those that have strong equity bases.’
With calls for bank assets to be marked to market or at least made compliant with International Accounting Standards Board’s (IASB’s) IFRS 9 rules, the days of bankers running rings around regulators in regards to the quality of their balance sheets is slowly fading into distant memory or at least that is the hope
Nigeria Insurance Deposit Corporation (NDIC) has guaranteed customers of insured commercial banks prompt recovery of their deposits in the event of risk liability or liquidation.
In addition, the corporation assured depositors of its statutory mandate, which includes supervising banks for risk assessment, ensuring ethical standards, and enhancing financial stability in the country.
Mrs Emily Osuji, executive director, Corporate Services, NDIC, gave the assurance during a Stakeholders Town Hall Meeting on customer protection regarding bank charges and deposits in Kano.
Mrs Osuji posited that the NDIC has, in recent times, demonstrated a strong commitment to protecting the hard-earned savings of Nigerians and sustaining confidence in the banking system.
She cited the cases of defunct Heritage Bank Limited, Union Homes Plc and Aso Savings and Loans Plc, where depositors received their deposits promptly after meeting the relevant requirements.
The NDIC boss, however, reminded customers to link their Bank Verification Number (BVN) as a unique identifier to locate their alternate accounts, where their claims will be transferred.
The executive director affirmed that NDIC has expanded coverage to protect about 99 per cent of depositors in Nigeria, a deliberate policy aimed at protecting small savers, promoting financial inclusion, and enhancing trust in the banking sector.
She said, “The corporation fulfils its role through its core mandates of deposit guarantee, bank supervision, distress resolution and bank liquidation, all of which are geared towards protecting the hard-earned savings of Nigerians and sustaining confidence in the banking system.
“Our strapline, ‘Protecting your bank deposits!’, is more than mere words for us. We stand by this statement as a firm commitment to our mandate of ensuring that depositors have access to their hard-earned savings in the event of bank failure.
“This is a critical responsibility that we do not take lightly. This is especially so in times of financial uncertainty and distress, with the NDIC standing as a pillar of safety and reassurance for depositors, particularly the most vulnerable.”
Speaking on the concept of stakeholder engagement, Hawwau Gambo, head of Communication and Public Affairs, said the corporation was compelled to provide clarity, build trust and strengthen depositor confidence amid misconceptions.
Gambo noted that the recent revocation of the operating licences of some banks by the Central Bank of Nigeria, (CBN) and the current public discourse on banks’ recapitalisation efforts have reinforced the need for sustained stakeholder engagement.
She reminded that sustained awareness is pertinent to dust, given already heightened public interest and featured public confidence in the financial institutions.
“NDIC’s last Public Awareness Survey highlighted the need to enhance interpersonal communication channels to improve public understanding of deposit insurance. It is against this backdrop that the Stakeholders’ Town Hall Meetings were conceived as a structured, interactive platform for dialogue, education and feedback,” Gambo noted.
The Central Bank of Nigeria in its 2025 Fintech Policy Insight Report, has raised concern over Nigeria’s fintech sector heavily dependent on foreign investment, exposing it to swings in global markets.
The report said the sector has shown resilience despite global economic pressures, but warned that reliance on external capital leaves it vulnerable to market fluctuations.
It would be recalled that startups in the country raised $520m in equity funding in 2024, down from about $747m in 2019, when Nigeria captured roughly 37 per cent of all African startup investment.
This performance, amid significant global macroeconomic gyrations, underscores Nigeria’s position as a key hub for financial innovation. The sharp rise in interest rates in advanced economies during 2022 contributed to a slowdown in venture capital funding.
“These dynamics highlight the importance of developing domestic funding avenues, such as leveraging Nigeria’s capital markets, to reduce currency risk and sustain fintech growth,” the apex bank stated.
Olayemi Cardoso, CBN Governor, said Nigeria is undergoing a rapid and significant financial evolution. Over the past decade, the nation’s fintech landscape has grown from a handful of startups into one of Africa’s most vibrant innovation ecosystems.
“Even amid global economic headwinds, Nigerian fintech firms continued to attract investment and drive change. Today, with improved stability of our currency and domestic economy, it is clearer than ever that financial innovation can advance inclusion at scale,” the executive commented on the report.
In addition to funding, the central bank underscored Nigeria’s continued leadership in digital financial infrastructure. More than 25 per cent of all electronic transactions in Africa’s most populous nation are processed via real-time payment channels, with close to 11 billion transactions processed in 2024, up from five billion in 2022. The report described Nigeria’s instant payments platform, NIBSS NIP, as among the most mature and widely adopted globally.
The report also mentioned the need to strengthen system integrity and reputation, pointing to compliance reforms, anti-money laundering supervision, and consumer protection measures as key priorities for sustaining investor confidence.
By focusing on domestic funding, regulatory modernisation, and innovation infrastructure, the CBN aims to position Nigeria not only as a fintech front-runner but also as a rule-setter whose regulatory lessons are relevant to peer emerging and high-growth economies globally, the central bank said.
Stakeholders surveyed by the CBN also cited compliance costs as a significant challenge to innovation. According to the report, 87.5 per cent of respondents said that the cost of meeting regulatory and risk requirements significantly impacts their capacity to innovate, while delays in product approvals and regulatory timelines also remain major bottlenecks.
The report noted that 62.5 per cent of fintech firms plan to expand regionally, and there is strong support for regulatory pass-porting frameworks to enable compliant expansion into other African markets. However, the CBN warns that such cross-border growth requires a stable funding base and coordinated regulation.
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