Nigeria Wants Banks to Alter 65% of Loans Amid Economic Fallout

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  • Lenders are already busy reorganizing $20 billion of debt
  •  Banks can revamp credit terms without booking provisions

Nigeria’s central bank wants the nation’s lenders to restructure almost two-thirds of all loans to help borrowers cope with lower oil prices and economic fallout from the coronavirus.

Loans worth 7.8 trillion naira ($20 billion) to 35,640 customers are already being reorganized out of 18.9 trillion naira in credit across the industry, Central Bank of Nigeria Governor Godwin Emefiele said on Monday. The central bank would be “more comfortable” if 65% of loans were restructured, he said.

The central bank is allowing lenders to alter the terms of customer loans without making provisions or classifying them as non-performing after imposing a moratorium on interest charges and principal debt repayments. Banks are at the center of Nigeria’s plans to rekindle the economy through credit and to distribute loans to farmers and manufacturers to spur local production.

A lockdown to contain the Covid-19 outbreak, a drop in oil prices and rampant dollar shortages have dealt a hammer blow to the economy of Africa’s largest crude producer, hindering the ability of borrowers to repay their debt.

“We believe some companies will not survive the crisis so restructuring for those will simply be an exercise in hope,” said Adesoji Solanke, director for frontier and sub-Saharan African banks equity research at Renaissance Capital. “A prudent bank will want to be on top of monitoring cash flows” and how its customers’ businesses are doing, he said.

The ratio of non-performing loans to total credit improved to 6.4% in June from 11.1% a year earlier, while the industry’s average capital adequacy ratio stood at 15% from 15.2% previously, Emefiele said.

Twenty-two of the nation’s lenders are involved in the transactions, he said. Emefiele was speaking after the monetary policy committee decided to hold the benchmark interest rate at 12.5%.

– Bloomberg.

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