Banks’ Impairment Charges Down by 34% to N86bn in Six Months

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Goddy Egene

Banks’ provision for loan losses have improved significantly as it reduced by 34 per cent in the six months ended June 30, according to the results posted by financial institutions on the Nigerian Stock Exchange (NSE).

The results compiled by THISDAY showed that a total of N85.625 billion was recorded as impairment charges by 14 banks, compared with N129.782 billion in the corresponding period of 2018.

The banks were: Access Bank Plc; Ecobank Transnational Incorporated; Fidelity Bank Plc; FBN Holdings Plc; Guaranty Trust Bank Plc; Jaiz Bank Plc; Sterling Bank Plc; Sterling Bank Plc; Stanbic IBTC Holdings Plc; United Bank for Africa Plc; Union Bank for Africa Plc; Unity Bank Plc; Wema Bank Plc and Zenith Bank Plc.
An impairment charge is the writing off of worthless goodwill.

It refers to assets that are no longer of the same value as they were in a prior period.
THISDAY’s investigation showed that although the total value of impairment charges declined, 10 of the banks actually recorded reduction, while four recorded increases.
For instance, Zenith Bank Plc, GTBank Plc, Unity Bank Plc and Sterling Bank Plc made higher provisions for impairment charges, while the remaining 10 banks made provisions lower than what was provided for the corresponding period of 2018.

However, Access Bank Plc’s impairment charges fell to N4.879 billion in 2019, down from N7.340 billion in 2018, while that of ETI declined from N61.2 billion to N49.3 billion. Fidelity Bank Plc recorded N2.593 billion provision for 2018 but recorded a write-back of N5.473 billion in 2019.

GTBank Plc ended the period with loan loss provision of N2.186 billion, up marginally from N2.032 billion, while that of Jaiz Bank Plc fell to N174 million, from N294 million.
Sterling Bank Plc made a provision of N2.429 billion, up from N1.844 billion in 2018, while that of UBA fell from N6.732 billion to N3.120 billion in 2019. Union Bank of Nigeria Plc had a write-back of N4.485 billion in 2019, compared with a charge of N4.625 billion in 2018.

Zenith Bank Plc recorded N13.735 billion impartment charge, up from N9.720 billion, just as Unity Bank Plc posted N491 million, compared with N223 million in 2018.
Wema Bank recorded N469 million impairment charges, down from N824 million, just as FBN Holdings Plc reduced its impairment charges to N8.26 billion, from N22.107 billion. FCMB Group Plc ended the six months with N5.498 billion loan loss provision, compared with N7.333 billion in 2018. Stanbic IBTC Holdings Plc recorded a write-back of N557 million compared with a provision of N5.508 billion in 2018.

Some of the banks that witnessed reduced impairment charges pledged to further improve on their balance sheet management.
Commenting on the development, an analyst at Ecobank Nigeria, Mr. Kunle Ezun, attributed it to the reduction in non-performing loans (NPLs) that has been observed in the industry.

“As the industry NPLs drop, we would continue to see reduction in impairment charges as some of them are no longer carrying toxic assets that were weighing them down. So, ones the loads are coming down, they won’t be having reasons to pay those charges,” Ezun told THISDAY in a telephone interview.

The Central Bank of Nigeria (CBN) recently disclosed that the value of NPL ratio in the banking sector stood at 9.36 per cent as at June 2019, the first time it would drop to single-digit in the past 40 months.

A member of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), Prof. Adeola Adenikinju, who disclosed this, had explained: “The Capital Adequacy Ratio (CAR) and NPLs ratios are trending in the right direction. For the first time since December 2015, the NPLs in June 2019 were single digit, though higher than the maximum required under the prudential guideline.”