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Bad Loans in Real Estate, Construction Sectors hit N226.62bn

The amount of non-performing loans recorded by Nigerian banks in the real estate and construction sectors rose to N226.62bn at the end of last year, latest data obtained from the National Bureau of Statistics have shown.

The NPLs in the real estate and construction sectors jumped by 66.57 per cent in 2020 from N136.05bn in 2019, according to the NBS data.

The statistics office said the bad loans in the real estate sector rose by 12.87 per cent to N56.03bn at the end of 2020 from N49.65bn in December 2019.

The amount of NPLs in the construction sector surged by 97.44 per cent to N170.59bn in December last year from N86.4bn a year earlier.

The construction sector contracted by -7.68 per cent last year, compared to a growth of 1.81 per cent in 2019 and 2.33 per cent in 2018, according to the NBS.

The real state sector shrank by -9.22 per cent in 2020, compared to a contraction of -2.36 per cent in 2019 and -4.74 per cent in 2018.

The Project Manager at EnergoBuilding Construction Limited, Toyin Ogunwale, in an interview with our correspondent, attributed the increase in bad loans in the construction sector to the COVID-19 pandemic.

He said, “As a result of the pandemic, the industry could not function effectively and this affected output. Note that for returns to be made to enable one to service a loan facility, service has to be rendered to generate the income needed to service such facilities.

“The prevailing inflation has played a major role in this challenge as most calculations and projections made as at the time these loans were procured have dipped in relation to current rates.”

According to him, contractors are struggling to meet up with costs and deliver on their deliverables while faced with the ugly reality of zero profit.

“This erodes the chances of securing liquidity to service the said loans,” Ogunwale added.

On his part, Chinedu Onubogu, an analyst at Argentil Capital Partners, an investment advisor active in the real estate sector, said 2020 was an unusual year with many sectors affected by the pandemic.

He said, “If you look at the data for real estate, for example, you will see that compared with the total of N1.2tn for non-performing loans across all sectors, it is just about 4.5 per cent, which is quite low as against the oil and gas sector where banks tend to lend more money to.

“The uptick in the real estate’s share of NPLs can be attributed to COVID-19 vis-à-vis the accompanying inflation and devaluation pressures which adversely impacted demand and supply.”

“As with other sectors, real estate is underpinned by economic fundamentals and there is a need for increased policy efforts aimed at reducing the cost of development while enabling reduced cost of financing as well as access to mortgage for customers,” he added.

The Senate had recently, in a resolution, called on the Federal Government to address the rising cost of building materials by providing industrial and tax incentives and to encourage local investment in cement production in Nigeria.

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