Nigerian banks are struggling as the percentage of impaired loans increased 3.69% in 2015 to 4.91% in 2016, while non-performing loans (NPLs) saw a larger increase from 5.30% in 2015 to 14% in 2016.
A Non-Performing Loan (NPL) is the sum of money borrowed in a loan contract in which the borrower has not made required repayments agreed to for at least 90 days. Whilst a loan is impaired where there is impartial evidence of one or more events in accordance with IFRS that the loan may not be paid.
IAS 39 requires interest income from all loans including the impaired to be accrued. In practice, when the repayment of a loan is in doubt, the continuation of interest accrual would be recording interest income that is not likely to be recovered.
The variance in the year-to-year change of the NPLs and impaired loans may highlight the Nigerian banking system is performing better than reported in managing its credit risks.