Following the implementation of Global Standing Instruction (GSI), which enables banks to go after debtors’ accounts in other banks to retrieve their loan, the non-performing loans have reduced significantly.

Prior to this development, the Nigerian banking sector witnessed a significant decline of 41% in non-performing loans.

According to data published by the Nigerian Bureau of Statistics (NBS), the drop in non-performing loans was that of last year.

The NBS reports that the non-performing loans dropped to N1.05 trillion in 2019, from 1.79 trillion, which was recorded in 2018.

It is however noteworthy to state that the significant decline was despite the fact that banks provided more credit facilities to the private sector in 2019.

Bank loans to companies in 2019 was N17.19 trillion, indicating a 4% increase when compared to the total loan of N15.13 trillion that was disbursed to the private sector in the preceding year.

The NBS report read partly, ”In terms of credit to the private sector, the total value of credit allocated by the bank stood at N17.19 trillion as at Q4 ’19. Oil & Gas and Manufacturing sectors got credit allocation of N3.42 trillion and N2.62 trillion respectively, to record the highest credit allocation as of the period under review.”

Effect of bad loans on banks

Non-performing loans erode the interest income of banks and other financial institutions, reducing profitability.

More so, in cases that a bank has too many non-performing loans in its balance sheet, it poses cash flow problems, since it is no longer earning income from its credit business.

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