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Home Banking CBN orders banks to double provisions for loans

CBN orders banks to double provisions for loans

The Central Bank of Nigeria has ordered commercial banks to double provisions on performing loans to two per cent to build adequate buffers against unexpected losses, according to a Reuters report quoting   a CBN circular.

General provisions on performing loans had been fixed at one per cent before the new regulation, said the circular which came into effect on Wednesday.

Economic challenges have been mounting after a plunge in oil prices cost the Federal Government vital revenues from crude sales, weakening the naira and slashing economic growth.

The circular read in part, “In recent times, the adverse macro-economic environment has been a source of concern in the financial sector

“Fiscal and monetary authorities are deploying remedial policy measures to ameliorate these challenges,” it added

The CBN has been injecting cash into the money markets since September in a bid to ease liquidity and reverse declining growth in the economy.

However, some lenders seem to be using the funds to invest in bonds rather than lending to households and businesses in a bid to avoid a build up of bad loans.

Analysts said the new rule would affect dividend payouts as lenders prepare to adopt stricter international requirements, Reuters reported.

A banking analyst at Renaissance Capital, Adesoji Solanke, expects more capital strain for FBN Holdings, Skye Bank Plc and Ecobank Nigeria.

Stanbic IBTC on Monday doubled its non-performing loan ratio to 8.8 per cent and cut its 2015 forecast for loan growth to three per cent from 10 per cent due to slowing economic activities on businesses.

Other lenders such as United Bank for Africa Plc and Diamond Bank Plc have also cut loan growth to buy bonds, citing rising regulatory uncertainty and weak output growth.

President Muhammadu Buhari had on Wednesday appointed a former investment banker, Kemi Adeosun, Minister of Finance, putting her in charge of handling the West African nation’s worst economic crisis in years and raising expectations of a clearer fiscal policy direction.

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