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The Central Bank of Nigeria (CBN) has posted higher net profits for 2022, but its financial health has been clouded by a significant increase in credit risk due to its lending to the government.
The bank’s financial records reveal a sharp decline in the credit quality of its risk assets, raising concerns about its impartiality while also acting as the banking industry regulator.
The credit loss expense for the regulatory institution surged from N498.2 billion in the previous year to N875.2 billion, according to the recently published audited earnings report.
A significant portion of the credit loss expense, approximately N610 billion, stemmed from loans and receivables, with a substantial 74% of this attributed to lending to the government.
Independent auditors Ernst & Young and KPMG, in their accompanying findings report, identified the bank’s impaired loans as a major audit concern. They underlined the complexity involved in estimating key assumptions related to the recoverability of loans and advances.
The CBN’s lending to the Nigerian government through short-term overdrafts, known as Ways and Means, grew significantly to N23.2 trillion by the end of 2022, up from N767 billion in 2015 when President Muhammadu Buhari took office.
This excessive lending violates the legal limit of advancing not more than 5% of the government’s previous year’s revenue and requiring repayment within the same fiscal year.
The CBN acknowledged that, as of December 31, 2022, it had extended a total of ₦23.18 trillion to the Federal Government, exceeding the statutory limit by ₦22.9 trillion. A legislative move to regularize this borrowing was approved in May, paving the way for converting the advance into a long-tenor bond.
However, critics have voiced concerns about the excessive debt, with estimates indicating Nigeria’s total debt could rise to around N69 trillion once the conversion process is complete.
Under the leadership of President Bola Tinubu, the government is taking steps to address these financial irregularities. Jim Obazee, a former CEO of the Financial Reporting Council of Nigeria, has been appointed as a special investigator to conduct a forensic audit of the CBN’s financial records.
The recently published 2022 financials also reveal that the CBN borrowed N3.1 trillion ($7 billion) and N230 billion ($500 million) from global lenders JP Morgan and Goldman Sachs, respectively.
Despite the improved net profit of N103.9 billion (compared to N75.1 billion in the previous year) and total assets rising by 9.5% to N60 trillion, the CBN’s lending practices and potential risks raise concerns about its financial stability and credibility.
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