GUARANTY Trust Holding Company Plc (GTCO), in the first half of its 2023 financial year, incurred N82.96 billion in loan impairment charges despite being far from meeting the central bank’s compulsory target on loan-to-deposit ratio (LDR) policy.

The ICIR‘s analysis of the bank’s audited consolidated and separate financial statements for the period ended June 30, 2023, shows its loan impairment charges rose by 2,257.52 per cent to N82.96 billion at the end of June, from N3.52 billion reported in the corresponding period last year.

The figure represents impaired charges on loans and advances to customers, and loans and advances to banks respectively.

A loan is considered impaired when it is probable that not all related principal and interest payments will be collected or recovered.

A tier-one Nigerian bank, GTCO has again defied the Central Bank of Nigeria’s (CBN) LDR policy.

The apex bank had in October 2019 directed commercial banks to maintain a minimum LDR of 65 per cent.

It set the policy to improve lending to customers to stimulate the real sector of the economy.

For a bank, LDR is used to assess its liquidity by comparing its total loans to deposits for the same period, which impacts both liquidity and solvency in the short, medium and long term.

The ICIR reports that a LDR implies that for every N100 received as deposits, a bank is to lend N65 to customers.

In the review period, analysis by The ICIR shows that the LDR of GTCO stood at 37 per cent as the bank reported N2.32 trillion total loans and advances to banks/customers against N6.32 trillion total deposit from banks/customers.

But the CBN had in a recent circular to banks said it would from July 31 this year begin enforcement of the 65 per cent LDR policy on banks disregarding its directives.

The ICIR reported  on July 30 that most banks, including GTCO, had since 2019 failed continually to meet the CBN’s 65 per cent minimum loan requirement to customers.

The report revealed that the LDR of GTCO dropped from about 46 per cent in 2020 to 44 per cent in 2021 and to 41 per cent in 2022.

According to Fitch, a global credit rating agency, Nigerian banks’ impaired loans are expected to surge on reform fallout.

The Nigerian authorities had floated the naira and removed subsidy on petrol, a move which experts have applauded but require putting measures in place to cushion the effect on the masses.

“Nigerian banks face weaker capital ratios and higher impaired loans following reforms to liberalise the Nigerian naira and to remove the long-standing subsidy on fuel.

“The official exchange rate depreciated sharply in June following the Central Bank of Nigeria’s decision to allow the naira to trade at a market-determined rate as part of the reforms under Nigeria’s new government. The official rate has depreciated by over 40 per cent since end-2022,” Fitch said.

The rating agency explained that the naira depreciation would inflate banks’ foreign-currency-denominated risk-weighted assets, and put pressure on capital ratios.

“The naira devaluation, along with the fuel subsidy removal, will also lead to higher near-term inflation and tighter monetary policy, putting pressure on borrowers’ debt-servicing capacity and causing impaired loans to rise quicker than we had previously envisaged,” Fitch added.