Nigeria's Central Bank of Nigeria says it is looking at ways to address the increasing problem of non-performing loans (NPLs), which rose to 649 billion naira ($3.2bn) last year
Soji Solanke, Head of Research for Nigeria at Renaissance Capital spoke to CNBC Africa about some of the options the banking sector will have in light of this.
- "For the banking system overall, I think what you would have seen is the Central Bank has itself flagged that NPLs across the system is roughly around 5 per cent now - end of 2014 that was 3 per cent, so it has risen quite dramatically."
- "I think if you do adjust the system NPLs for the level of restructuring that is actually happening in the banking system, you're probably facing a situation where the potential non-performing loans in the sector could easily be between 10 and 15 per cent - if you adjust for what has been restructured. I think for this year, what you'll likely see is NPLs of anything between 5 and 10 per cent"
- "We need to understand that the nature of the risk today is very different from 2009 - back in 2009 we were faced with the banking system where most of the loans the naira denominated, fast-forward to 2015/2016 40-45 per cent of the sectors loan book is FX, so even if you wanted to have a bailout, you actually need the FX to bail the system.The FX today is, to a large extent unavailable.
- "I would say the discussions around AMCON can happen but for AMCON to actually get involved to a large extent today, you need to back that up with the FX which too a large extent isn't available."
What options do the banks have?
-"I think they will actually have to write-off these NPLs, maybe what you'll see is the Central Bank giving them a period in over which big NPLs will be written-off, as opposed to writing everything off."
Watch full interview below: