No panic over N112.11bn IT bad loans – Nnamani
Ikechukwu Nnamani, the president of Association of Telecommunications Companies of Nigeria (ATCON) has said the sum of N112.11 billion non-performing loan owed banks by information technology firms in the country should not cause panic.
Reacting to report by the National Bureau of Statistics (NBS) that fingers IT firms among culprits contributing to bad loans in the country, Nnamani said the situation is typical of the tech sector where money invested often takes some years to recoup.
The NBS report had stated that non-Performing Loans (NPLs) or bad loans in the banking sector increased to N1.23 trillion in 2020 from N1.06trillion in 2019.
Also, the Bureau in the “Selected Banking Sector Data: Sectorial Breakdown of Credit, ePayment Channels and Staff Strength” report disclosed that gross loans by banks was N20.48 trillion as at fourth quarter of 2020.
It said that bad loans in Information Communication hit N112.11 billion in 2020 from N81.10 billion reported in 2019.
The sector, alongside Oil & gas, Construction, and general commerce contributed N754.1 billion bad loans in 2020, according to the report.
More than the IT sector, bad loans in the Oil & gas top the chart in 2020, adding N95.91billion or 43.70 per cent to hit N315.38billion in 2020 from N219.47billion in 2019.
Non-performing loans in the construction sector added N84.19 billion or 97.44per cent to stand at N170.59 billion in 2020 from N86.40billion in 2019, while the general commerce industry had N156.02 bad loans from N 145.26 billion reported in prior year.
However, ATCON has assured that there is no cause for alarm as bad loan in the Information and Communication will be tackled.
Nnamani noted that the situation is typical of the ICT sector due to its nature, as the sector has long time gestation period before revenue generation is achieved.
He stated that “A typical ICT infrastructure project has a gestation period that can only last a minimum of three years in terms of infrastructure, in terms of how to build that infrastructure. If the loan is not well structured, you will see a situation where, if they don’t give enough moratorium, they will start counting on the loans even the infrastructure is still being built. So, that needs to be taken into consideration.
“Speaking generally from what I know in the sector, telecom and ICT project has a long gestation period before you start generating revenues.
“It also not uncommon to see long-term loan invokes. The bank ought to record them as Non-performing, but that doesn’t mean the loan has gone bad, we need to understand this.
“Secondly, once a project takes off and the assumptions behind NBS performance is accurate, it doesn’t take long to pay. It sometimes could see a loan that was long performing for several years, suddenly get paid within a short period of time because now the project is high, Users are using it and revenue is being generated.
“That is one of the areas we’re trying to relate with the banking sector so that we can properly execute them on the nature of telecom and ICT infrastructure.
“I am sure the Etisalat loan that was taken over under the new 9mobile with the restructuring that CBN and NCC facilitated to prevent it from going under is included in this also. All that should be taken care of in the near future,” he said.
He hinted that the high cost of foreign exchange is a major hindrance to loan repayment in the ICT sector.
The ATCON boss further disclosed that while telecom operators mostly import infrastructure in USSD, they generate profits in Naira, thereby increasing the burden of loan repayment in the Sector.