Non-performing loans (NPLs) in seven Nigerian banks sector have surpassed N1.57 trillion, even as lenders report an overall improvement in loan quality.
Data compiled from the 2024 financial statements of the banks—Access Holdings, GTCO Holdings, UBA, Zenith Bank, Wema Bank, Fidelity Bank, and Stanbic IBTC—show that the aggregate NPL ratio declined to 3.93 percent, down from 4.18 percent in 2023.
In absolute terms, however, bad loans are on the rise. The total value of NPLs reported by these banks increased by 30 percent, from N1.21 trillion in 2023. This is against the backdrop of a 39 percent surge in total customer loans, which expanded from N28.9 trillion to N40.1 trillion, driven by naira devaluation and the pursuit of higher interest income in a high-rate environment.
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The growth in loan profile of the banks is linked to the devaluation of the Naira in 2024, as foreign currency denominated loans now have a higher nominal value in Naira. Also, it reflects a strategic response by banks to boost interest earnings, as interest income became the mainstay of their earnings.
Most banks reported record earnings, underpinned by wider net interest margins. However, this profitability comes at a cost: rising defaults. Elevated lending rates have begun to strain borrowers’ ability to repay, contributing to the uptick in NPLs.
While the decline in the overall NPL ratio may seem encouraging, it masks troubling signs at some individual bank level. For instance, GTCO Holdings breached the Central Bank of Nigeria’s (CBN) 5 percent regulatory NPL threshold, recording a ratio of 5.18 percent, up from 4.19 percent in 2023. Similarly, UBA’s Stage 3 loans—which include credit-impaired facilities—rose to 6.64 percent of gross loans, up from 6.48 percent.
Other banks managed to keep their NPL ratios below the 5 percent mark. Stanbic IBTC rose to 4.18 percent (from 2.35 percent), Zenith Bank fell to 3.13 percent (from 4.40 percent), while Fidelity Bank and Access Holdings posted slight improvements at 3.22 percent and 3.03 percent, respectively.
Individual bank numbers
GTCO Holdings’ NPLs surged by 38 percent to N151.2 billion, from N109.6 billion despite just a 12 percent increase in its loan book to N2.92 trillion. UBA maintained its status as the lender with the highest volume of non-performing loans, with Stage 3 loans climbing 29 percent to N437.6 billion.
Stanbic IBTC experienced a sharp 110 percent rise in NPLs to N103.5 billion, while its loan book only grew by 18 percent—signaling a worrying deterioration in asset quality.
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Zenith Bank’s Stage 3 loans rose by 11 percent to N344.6 billion; however, this increase was far outpaced by a 56 percent surge in its total loan portfolio, which grew to N11 trillion from N7.1 trillion in 2023—helping dilute the impact on its NPL ratio. Fidelity Bank and Wema Bank also reported increases in impaired loans—up 25 percent and 34 percent respectively—though both banks expanded their loan books significantly.
Access Holdings, Nigeria’s largest lender by assets reported a 38 percent increase in Stage 3 loans. However, the bank’s robust 43 percent growth in its total loan portfolio to N11.5 trillion helped moderate its overall credit risk profile.
Lending is concentrated in O&G, Manufacturing
One of the more striking trends in 2024 is the growing concentration of credit exposure to two traditionally high-risk sectors: oil and gas, and manufacturing. Loans to the oil and gas sector grew by 55 percent to N11.5 trillion from N7.4 trillion in 2023. While manufacturing loans jumped 44 percent to N6.6 trillion, from N4.6 trillion.
These sectors, often hit hardest by FX volatility and inflationary pressures, carry high latent risk. The growing concentration of exposure to these industries suggests that while banks have diversified loan volumes, they may be clustering around similar high-risk sectors.
Though the banks’ ability to expand their loan portfolios while maintaining broadly stable NPL ratios suggests resilience and sound underwriting practices, the rapid increase in nominal NPL volumes indicates that credit risk is mounting beneath the surface.
American economist, Robert T. Clair in a 1992 study noted, “Banks tend to lower underwriting standards to attract more loan customers.” For now, Nigerian banks appear to be resisting this tendency—maintaining reasonable loan quality metrics even as they scale. However, the long-term sustainability of their asset quality will depend heavily on macroeconomic stability and proactive risk management, which they are good at.
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Moreover, the recent upgrades of several Nigerian banks’ long-term issuer ratings by Fitch—from ‘B-’ to ‘B’—including Access Bank, GTCO, Zenith Bank, UBA, and Fidelity, reflect international confidence in their short-term resilience. However, as lending continues to outpace GDP growth and sectoral risks deepen, resilience may demand diversification, prudence, and agility.
