‘Expansion of Retail Lending May Lead to Rise in NPLs’

21 Nov 2012

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Group Chief Executive of Stanbic IBTC, Mrs Sola David-Borha

Eromosele Abiodun
The Group Chief Executive of Stanbic IBTC, Mrs Sola David-Borha, has warned that the expansion of retail lending and indeed, the rapid expansion of credit in Nigeria may lead to a rise in Non-performing Loans (NPLs).  She stressed that the situation presented risks to the banking sector.

Many of the banks, David-Borha stated, were competing for the same corporate clients warning that this required a focus on quality, as well as exploiting opportunities outside the balance sheet of the corporate client, such as banking the employees.

The chief executive who spoke to Oxford Business Group (OBG) while carrying out a survey of the performance of the banking sector, said banks are increasingly looking to tap into the retail market, particularly as domestic demand for banking products rises along with purchasing power. Making a success of this, she asserts, will partly be dependent on innovation.

According to her, “The healthy performance of the country’s banks has increased competition as well, particularly as the corporate segment becomes ever more saturated. Therefore, technology and IT are the way forward. Electronics, phones, ATMs, and mobile money represent new ways of interacting with existing customers and new markets.

“These new channels allow us to expand the reach and services of branches. But NPL risk in the retail segment is factored into pricing. Furthermore, expansion into retail lending should help banks diversify their asset portfolios, reducing exposure to high risk-weighted corporate and low-rated government debt.”

On their part, OBG warned that given the recent past, and rather high rates of lending growth in an inflationary environment, Nigeria’s bankers, authorities and market-watchers would be wise to be cautious.

“But the changes wrought after the 2008/09 disasters, and the country’s economic outlook, bode well for the stronger players. The measures to tackle the crisis, while very expensive, are widely regarded to have been successful. The reinforcements made to the system and to individual banks seem to have established a firm base for growth, “OBG said.

They added: “As an International Monetary Fund (IMF) report in July noted financial soundness indicators point to continued improvements in the health of the banking system. NPLs have declined sharply following their purchase by the Asset Management Corporation of Nigeria (AMCON) and credit has stopped declining.”

Tags: Business, Nigeria, Featured, Retail Lending

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