Risk Assets: How 10 Banks Hiked Loan Loss Provisions to N2.38trn

Kayode Tokede

In an audacious move to reduce the negative impact of macroeconomic challenges on their risk assets, a total of 10 banks hiked their loan loss provisions to N2.38 trillion in 2024, representing about 59.5 per cent increase from the N1.49 trillion reported in the 2023 financial year.

Loan loss provision, which is also referred to as impairment charge, is an expense set aside to cover potential losses from unpaid loan, or a bad loan. Impairment captures a reduction in the value of a firm’s assets.

The 10 banks are: Access Holdings Plc, Guaranty Trust Holdings Plc (GTCO), First Holdings Plc, Wema Bank Plc, Stanbic IBTC Holdings Plc, and Zenith Bank Plc.

Others include: Ecobank Transnational Incorporated (ETI), United Bank for Africa Plc (UBA), Fidelity Bank Plc, and FCMB Group Plc.   

In 2024, the Central Bank of Nigeria (CBN) hiked the country’s benchmark rate from 18.75 per cent to 27.50 per cent.

While banks increased their lending partly due to the CBN’s policy on loan-to-deposit ratio (LDR), which is put at 65 per cent, macroeconomic challenges in Nigeria and sub-Saharan African countries where they operated have disrupted economic activities, a threat to affect to risk assets.

THISDAY analysis of the banks’ 2024 financial results showed that Zenith Bank, ETI, and First Holdco significantly increased their loan provision in 2024. 

In the full year under review, Zenith Bank recorded N658.81 billion impairment charges, an increase of 60.8 per cent from the N409.62 billion in 2023, while ETI posted impairment charges of N482.43 billion, showing an increase of 126 per cent from the N213.67 billion in 2023.

In its audited results for the full year ended 2024, First Holdings announced N426.29 billion as impairment charges in 2024, up by nearly 89 per cent from the N224.95 billion reported in 2023.

Among the 10 banks, Wema Bank and Stanbic IBTC Holdings also declared a significant increase in impairment charges in 2024. For instance, Wema Bank declared N21.64 billion impairment charges in 2024, representing an increase of 105 per cent from N10.56 billion in 2023 while Stanbic IBTC Holdings announced N99.4billion impairment charges in 2024, a significant increase of 543 per cent when compared to N15.45 billion declared in 2023.

Stanbic IBTC Holdings in a presentation said impairment charge on loans and advances was due to the impact of expected credit loss (ECL) charges on new loans booked and additional provisioning on existing Non-Performing Loans (NPLs).

The bank said, “the impairment on Stage 1 loans increased due to increase in new loans booked. Impairment on Stage 1- others increased from N2.04 billion to N18.49billion due to increased provisioning on aged receivables. Credit loss ratio however increased to 3.5 per cent in FY 2024.”

Capital market analysts stated that the growing impairment charges do not come as a surprise given the headwinds in the economy, stressing that banks are battling with rising inflation rate, unstable foreign exchange and hike in interest rate.

Speaking, Investment Banker and Stockbroker, Mr. Tajudeen Olayinka, stated that the rising cost of risk of banks is a reflection of the weakening fundamentals of the economy.

“The NPL growth in some banks is higher in nominal terms, except that the double-digit growth in the loan book partly masked the effective rise in the NPL ratio. More so, the relatively weak fundamentals of the economy, exacerbated by the inflation rate and unstable foreign exchange, resulted in higher portfolio impairment charges on stage 1 loans, despite being performing assets,” he stated.

He added that the percentage of stage two loans, which though performing but had shown stress and likelihood of delinquency over the near term, had increased across the industry.

He said, “Therefore, deserving the conservative stance of banks and their auditors to proactively take a higher anticipatory impairment charge on such loans.”

On his part, the Vice President, Highcap Securities, Mr. David Adnori said banks operating in Nigeria, and other SSA countries recorded significant increase in impairment losses due to the macroeconomy challenges of 2024 despite Nigerian economy showing notable signs of recovery and resilience.

According to him, the financial system demonstrated soundness, stability and resilience with the NPL at a modest ratio, stressing that banks have to make provision in case of uncertainties.