Kayode Tokede

In light of the macroeconomic challenges impacting their risk assets, a total of 11 banks have made the notable decision to significantly increase their impairment charges to N1.03 trillion for the six months ending June 30, 2024. This represents a remarkable 56.3% rise from the N657.7 billion recorded during the same period in 2023.

Impairment charges typically signal a decline in asset value or indicate that asset performance has not met expectations. Interestingly, even as lending has seen an uptick—driven in part by the Central Bank of Nigeria’s (CBN) policy requiring a loan-to-deposit ratio (LDR) of 65%—the ongoing economic struggles across Nigeria and other Sub-Saharan African countries have disrupted numerous economic activities, adversely affecting many risk assets.

In our investigation, we found that nine banks—including Access Holdings Plc, Zenith Bank Plc, FBN Holdings, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, Ecobank, Wema Bank Plc, and Sterling Financial Holdings—have raised their impairment charges in the first half of 2024. In contrast, United Bank for Africa Plc (UBA), Guaranty Trust Holding Company Plc, and FCMB Group Plc have seen a reduction in their impairment charges during the same timeframe.

While the total provisioning among these 11 banks increased by 56.3%, some banks experienced staggering growth in their impairment charges, exceeding 300%. Stanbic IBTC Holdings, for instance, reported an astounding 344% surge, with charges jumping from N5.98 billion in H1 2023 to N26.5 billion in H1 2024. The bank attributed this rise to expected credit loss (ECL) charges on newly booked loans and further provisioning for existing non-performing loans (NPLs). “Impairment on Stage 1 loans increased due to the rise in new loans booked. The credit loss ratio, however, rose to 1.7% in H1 2024,” stated Stanbic IBTC Holdings.

Access Holdings noted a 230% increase in impairment charges, which grew from N37.18 billion in H1 2023 to N122.74 billion in H1 2024. Similarly, Zenith Bank’s impairment charges surged to N415.29 billion, a nearly 100% rise from N207.93 billion in H1 2023. FBN Holdings also recorded N92.99 billion in impairment charges for H1 2024, marking a 64% increase from N56.72 billion in the previous year.

Fidelity Bank’s provisioning reached N35.93 billion, reflecting an 80.3% rise from N19.9 billion in H1 2023, while Ecobank’s charges skyrocketed to N187.99 billion, a staggering 272.56% increase from N50.5 billion from the prior year. Wema Bank’s impairment charges were reported at N4.65 billion in H1 2024, a 234% rise from N1.4 billion in H1 2023. Finally, Sterling Financial Holdings experienced a modest increase of 7.3%, with charges growing from N4.16 billion in H1 2023 to N4.47 billion in H1 2024.

On the other hand, GTCO experienced a reduction in impairment charges of 42.9%, decreasing from N82.96 billion in H1 2023 to N47.4 billion in H1 2024. UBA’s charges also dropped by 59.3%, dropping to N58.56 billion in H1 2024 from N143.9 billion in the previous year. Additionally, FCMB Group reported N31.34 billion in impairment charges for H1 2024, reflecting a 33% decrease from N47.08 billion in H1 2023.

In a statement to investors and analysts, GTCO noted, “The Group acknowledged significant loan impairment charges of N47.40 billion in H1 2024, which, while lower than the N82.96 billion charged in H1 2023, reflects the risk management strategies established in prior years and the ongoing improvement in the quality of our loan portfolio. Despite challenging macroeconomic variables, key drivers affecting our predictive ECL model indicated a negative impact on the ECL allowance during this period, prompting management to proactively increase credit risk reserves.”

Analysts suggest that the escalating impairment charges come as no surprise given the economic headwinds, including rising inflation rates, fluctuating foreign exchange conditions, and climbing interest rates. Mr. David Adnori, CEO of Highcap Securities Limited, stated that the increased cost of risk, signified by higher impairment charges, serves as a clear indicator of the weakening fundamentals within the economy.

“While the industry’s non-performing loan (NPL) ratio fell to 3.8% in June 2024 from 4.8% in April 2024, some banks still reported climbing NPLs. In nominal terms, NPL growth in certain banks is alarming, even if the double-digit growth in their loan portfolios conceals a genuine rise in the NPL ratio,” he elaborated.

He added that the percentage of Stage 2 loans—those that are performing but under stress—has been increasing throughout the industry, necessitating a more cautious approach from banks and auditors, resulting in anticipatory impairment charges on these loans. “This rising cost of risk reflects the lagging effects of economic realities and inherent credit risks posed by banks. While the CBN and the banking sector take measures to safeguard profitability, I expect more credit losses in the fiscal year 2024 as macroeconomic weaknesses continue to undermine asset quality.”

Despite these challenges, he remains optimistic, suggesting that the situation is unlikely to escalate into a crisis. He anticipates that the NPL ratio will peak this year before beginning to stabilize in 2025. “The repercussions on individual banks will vary; for instance, those that have extended foreign currency loans to local businesses—especially within sectors like power, which generates revenue in naira—could face major challenges due to naira devaluation and foreign exchange supply shortages, hindering borrowers’ capacity to meet their financial obligations,” he concluded.