The IMF has a message for Nigerian bank regulators: do not get comfortable. Even as the country's banking sector shows signs of strengthening, the fund is calling on oversight bodies to stay alert to a growing pile of non-performing loans sitting on bank balance sheets.
Non-performing loans, or NPLs, are loans that borrowers have stopped repaying, usually for 90 days or more. When these pile up across the banking system, they can signal deeper trouble ahead, eating into profits and limiting banks' ability to lend to businesses and everyday Nigerians who need credit.
The IMF's warning lands at a moment when Nigerian banks have been working hard to shore up their capital bases, following the Central Bank of Nigeria's recapitalisation directive. Stronger capital buffers are a good thing, but they do not automatically cancel out credit risk, and that appears to be exactly the point the fund is making.
The story is still developing, and the full detail of the IMF's assessment is expected to reveal more about which loan categories are under the most pressure. Watch this space.
Originally published by BusinessDay.