GUARANTY Trust Holding Company Plc (GTCO) has reported a significant increase in loan impairment charges to N89.46 billion in the third quarter (Q3) 2023.

According to the bank’s unaudited consolidated and separate financial statements for the months ended September 2023, released on Tuesday, October 24, to the investing public, the amount rose by over N85 billion compared to N3.699 billion incurred in Q3 2022.

According to Accounting Tools, a loan is considered to be impaired when it is probable that not all of the related principal and interest payments will be collected.

The ICIR analysis of the report showed that GTCO’s loan impairment charges rose by 2,318.45 per cent to N89.46 billion in the review period.

A breakdown of the bank’s loan impairment revealed that GT Bank Nigeria incurred 96.19 per cent or N86.054 billion of the N89.46 billion charges.

Other subsidiaries which recorded loan impairment charges were GT Bank Ghana, N861.23 million; GT Bank Sierra Leone, N560.54 million; GT Bank Liberia, N2.14 billion; GT Bank Gambia, N80.85 million; GT Bank Cote D’Ivoire, N4.21 million; and GT Bank Tanzania, N27.15 million.

Meanwhile, a N265.93 million loan impairment gain reported by GT Bank Kenya Group brought the loan impairment charges to N89.46 billion.

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

According to a report by Fitch, a global credit rating agency, Nigerian banks’ impaired loans are expected to surge on the fallout of the exchange rate reform of President Bola Tinubu.

The rating agency stated, “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.”

In its six-month audited financial statements for the period ended June 30, 2023, GTCO also suffered loan impairment charges of N82.96 billion from N3.52 billion in June 2022 despite being far from meeting the Central Bank of Nigeria’s (CBN) compulsory target on loan-to-deposit ratio (LDR) policy of 65 per cent.

The CBN had said it would from July 31 begin enforcement of the 65 per cent LDR policy on banks flouting its directive.

The apex bank had set the LDR policy to improve lending to customers to stimulate the real sector of the economy with the directive that for every N100 received as deposits, the banks are to lend N65 to customers.

However, most banks, including GTCO, have continued defying the CBN’s directive since the policy was enacted in October 2019.

The drawback in the impairment charge for credit losses on loans points to the hard times faced by the banks, forcing them to put aside much of their revenue to cover potential losses.

Checks by The ICIR on some banks’ half-year financial statements for the period ended June 2023, as many of the banks are yet to release their Q3 results, showed significant loans impairment losses suffered by the banks.

In the half-year results, FBN Holdings Plc incurred an N57.63 billion impairment loss from N21.71 billion in June 2022; United Bank for Africa (UBA), N143.93 billion from N11.77 billion; Zenith Bank, N207.93 billion from N25.12 billion; and Access Holdings N37.18 billion from N36.86 billion respectively.

The naira devaluation and fuel subsidy removal 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, 1qFitch added in its report.