Guaranty Trust’s Non-Performing Loans Still Above 5% Prudential Benchmark

Guaranty Trust Holding Company Plc is still struggling to keep its non-performing loans portfolio within the Central Bank of Nigeria prudential threshold.

A non-performing loan is defined as borrowed money for which the debtor has not made scheduled payments (principal or interest) for at least 90 days, according to a CBN document.

As of September 2022, GTCO’s third quarter financial statement reveals that the lender has N1.92trn loans and advances to customers out of which N108.4bn are non-performing loans.

This represents 5.64 per cent NPL held in the lender’s portfolio and higher than the CBN five per cent threshold.

CBN said in an exposure draft on prudential guidelines to lenders released in 2019 that “banks are required to manage their credit risk effectively. To this end, all banks are to ensure that the level of NPLs in relation to gross loans does not exceed five per cent.”

Last year December, the lender maintained a worrisome 6 per cent NPL ratio with gross loans at N1.88trn, while the NPL was N113.89bn.

At the September 2022, Monetary Policy Committee Meeting of the CBN where it raised benchmark rate to 15.5 per cent, the CBN warned banks to maintain NPL ration below the 5 per cent benchmark.

The CBN said NPL ratio to 4.8 per cent in August 2022, compared with 5.0 per cent in June 2022, but emphasized on its “tight prudential regime, to ensure that the NPL ratio is kept below its 5.0 per cent prudential benchmark.”

Banks have been projected to witness higher loan defaults, driven by the recent hike in interest rates.

As inflation bites and effectively making way for hike in rates, maximum lending rate in Nigeria which was 28.30 per cent in August will surge.

Currently, banks have begun to renegotiate floating-rate loans taken by customers.