Nigeria’s banking industry remained well-capitalized with NPLs contained, but…IMF says

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Nigeria’s banking industry remained well-capitalised with the level of non-performing loans (NPLs) contained.

“Nevertheless, it remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates,” it said, adding that NPLs often rose towards the end of an economic crisis.

The extension of the moratorium on principal payments of qualifying credit facilities on a case-by-case basis through March 2022 should be limited to viable debtors with strong pre-crisis fundamentals.

CBN stress tests purport that the banking system would remain adequately capitalized except in case of a severe deterioration of credit quality.

Nevertheless, it remains to be seen what share of forborne loans may turn non-performing as the impact of the pandemic abates.

Since NPLs often rise at the later part of economic crisis, CBN’s strong oversight remains critical to safeguarding financial sector stability.

The recent removal of the official exchange rate from the CBN website and measures to enhance transparency in the setting of the NAFEX exchange rate are encouraging.

The mission recommended maintaining the momentum toward fully unifying all exchange rate windows and establishing a market-clearing exchange rate.

On monetary policy, to strengthen the monetary targeting regime, the mission recommended integrating the interbank and debt markets and using central bank or government bills of short maturity as the main liquidity management tool, instead of the cash reserve requirements.