Kayode Tokede

Following gradual improvement ineconomic indicators, loan impairment charges in the nation’s banking industry has begun to trend southward.

Specifically, nine banks listed on the Nigerian Exchange Limited (NGX) impairment charges declined to N264.88 billion in the first quarter of 2025, about a 5.1 per cent decline when compared to N278.97 billion in the first quarter of 2024. 

This is according to the banks’ unaudited results and accounts for the first quarter ended March 31, 2025 published by the NGX.

The banks are:  Zenith Bank Plc, Ecobank Transnational Incorporated (ETI), United Bank for Africa (UBA) Plc, First Holdco Plc, and Access Holdings Plc.

Others are:  Guaranty Trust Holding Company Plc (GTCO), Fidelity Bank Plc, Wema Bank Plc FCMB Group Plc.

The nine banks had in 2024 declared loan impairment charges of N2.28 trillion, representing a significant increase of 66.31 per cent from the N1.37 trillion declared in the 2023 financial year. 

Loan impairment charges refer to the adjustments made to the value of a loan when it becomes probable that the borrower will not meet their obligations as per the original terms.

This typically occurs when the borrower faces financial difficulties, leading to missed payments or a restructuring of loan terms.

In Q1 2025, the Central Bank of Nigeria (CBN) retained its Monetary Policy Rate (MPR) or interest rate at 27.50 per cent.

During the period under review, Nigeria’s headline inflation rate surged to 24.23 per cent in March 2025 from 15.44 per cent (rebased) in December 2024, according to data released by the National Bureau of Statistics (NBS).

This marks a significant increase from the 23.18 per cent recorded in February 2025, demonstrating the persistent pressure on household incomes, rising food prices, and the broader cost of living across the country.

The NBS datashowed that inflation continues to accelerate, driven largely by increases in the prices of essential food and non-food items.

This has further strained the finances of millions of Nigerians grappling with sluggish wage increases and economic uncertainty.

While banks increased their lending partly due to the CBN’s policy on the loan-to-deposit ratio (LDR), which is put at 65 per cent, macroeconomic challenges in Nigeria and sub-Sahara African countries where they operate have disrupted economic activities, and it is expected to affect most risk assets.

THISDAY analysis of the banks’ results revealed that UBA Plc significantly hiked its loan impairment charges, while most of the other banks reduced loan impairment charges in the period under review.

As UBA declared N11.12 billion loan impairment charges in Q1 2025, about a 592.96 per cent increase over N1.61billion in Q1 2024, Wema Bank posted N1.82 billion loan impairment charges in Q1 2025, representing an increase of 64.7 per cent from N1.1 billion in Q1 2024.

ETI’s loan impairment charges stood at N114.32 billion in Q1 2025, up by 7.8 per cent from N106 billion in Q1 2024. 

Zenith Bank declared N49.4 billion loans loan impairment charges in Q1 2025, about a 12 per cent decline from N55.97billion in  Q1 2024; GTCO reported N13.42 billion loan impairment charges in Q1 202, representing a decline of 0.47 per cent from N4.05 billion in Q1 2024; First Holdco announced N37.25billion loan impairment charges in Q1 2025, a decline of 11.2 per cent from N41.93billion in Q1 2024 and Access Holdings closed Q1 2025 with N21.77 billion loan impairment charges about 4.5 per cent drop of N22.79billion in Q1 2024. 

In addition, Fidelity Bank announced N6.29biillion loan impairment charges in Q1 2025, about a 49 per cent decline from N12.37billion in Q1 2024, while FCMB Group said its loan impairment charges declined from N23.71 billion in Q1 2024 to N6.3billion in Q1 2025 (a decline of 49.2 per cent).

Analysts posit that the decline in loan impairment charges does not come as a surprise given the improvement in economic indicators, as they noted that banks are battling with rising loan default, unstable foreign exchange, and hikes in interest rates.

S & P global ratings in a report stated that it expected credit losses for the banking sector to remain in 2025 at about 2.5 per cent- three per cent compared with an estimated three per cent-3.5 per cent in 2024.

The global rating agency in a report titled, “Nigerian Banking Outlook 2025: Resilient Performance Amid Macroeconomic Pressures,” said the elevated credit losses reflect the currency depreciation, as foreign currency loans account for 50per cent of banks’ loan books on average.

“The banking system’s dollarization has increased following the depreciation of the naira in 2023 and 2024.In addition, high interest rates and inflation have exerted pressure on borrowers’ creditworthiness, particularly for corporates in non-essential consumer goods sectors and import-dependent corporates that cannot fully pass through the high cost of inflation to consumers.

“We anticipate nominal nonperforming loan (NPL) stock to increase by 14per cent, while the NPL ratio will likely decrease slightly to about 3.8 per cent,” S & P added.

Speaking from a different perspective, Investment Banker & Stockbroker, Mr. Tajudeen Olayinka stated that the rising cost of risk of banks, which is simply referred to as higher loan impairment charges recorded by some banks’ Q1 2025 is a reflection of weakening fundamentals of the economy.