Nigerian banks’ non-performing loan ratio rises to 5.3% in April 2022

The Non-Performing Loan (NPL) ratio of commercial banks in Nigeria fell to 5.3% in April 2022 from 4.84% in February 2022. This is according to data from the Central Bank of Nigeria.

The NPL ratio calculates the percentage of bank loans that are not managed effectively or have gone completely bad. Therefore, the apex bank said more work needed to be done to reduce NPLs below its prudential limit of 5.0%.

Meanwhile, the capital adequacy ratio, which assesses the strength of a bank’s balance sheet, increased moderately to 14.6% in April 2022 from 14.5% in December 2021. This also shows that the CAR is above its prudential limit.

What the CBN says

The apex bank said“In the banking system, the capital adequacy ratio (CAR) and the liquidity ratio (LR) remained above their prudential limits at 14.6 and 43.7%, respectively.”

The CBN said the banking system is stable but there is a need to deal with the increase in non-performing loans.

The CBN said: “The non-performing loan (NPL) ratio stood at 5.3% in April 2022, against its prudential limit of 5.0%, reflecting a lasting stability of the banking system, even if it remains necessary to bring it back to normal. prudential limit. ”

What you should know

  • The NPL ratio is an essential measure for assessing the health of the banking system. If the NPL exceeds the prudential limit, it may suggest that commercial banks have more underperforming loans than expected, due to the inability of the private sector to service the loans.
  • The capital adequacy ratio (CAR) is the proportion of a bank’s Tier 1 and Tier 2 capital (qualified capital or equity) to its risk-weighted assets (loans). It is the proportion of a bank’s equity in its exposure to risk.
  • The capital adequacy ratio (CAR) for banks in Nigeria is currently 10% and 15% for national/regional banks and banks with an international banking license, respectively.

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