Banks credit to the private sector is expected to grow in 2018, thanks to a drop in yields on Treasury bills (T-bills), improved consumer confidence and, an improvement in macroeconomic condition, according to research house, FSDH Merchant Bank.
The total credit to the private sector in 2017 witnessed a marginal decrease of 2.34 percent to N15.74 trillion compared with N16.12 trillion in 2016, according to the National Bureau of Statistics (NBS).
Banks slowed down on lending to the private sector as an economic recession in 2016 brought on by a sudden drop in oil price and a severe dollar scarcity hindered companies and government from paying back interest on money borrowed.
The most affected of these sectors are the transportation & storage, general commerce, education and information and communication. Credit to players in the transportation and storage sub sector declined by 26 percent to N332.08 billion in 2017, down from N450.75 billion in 2016. From N1.31 trillion in 2016, credit to the general commerce sub sector fell by 21 percent to N1.04 trillion in 2017.
Also, banks slowed lending to the real sector as they made money when yields on short term government securities hovered around 18 percent to 21 percent between April and October 2017.
As a result of the aforementioned monetary policy, 13 banks raked in N562.67 billion in interest income from treasury bills in the third quarter of 2017, representing a 53.55 percent increase from 2016 of N366.42 billion figure recorded in 2016.
However, yields on 90 days short-term paper saw a sharp decline to 8.75 percent in January to finally hit its current 13.10 percent as government issued more dollars denominated debt and effectively reduce its naira debt.
Analysts are of the view that the sharp drop in asset yields on government securities will force banks to start lending to the real sector as the end of free money are over.
They add that a rate cut by the Central Bank of Nigeria (CBN) will strengthen lending to the private sector.
For the first nine months through September 2017, cumulative loans and advances to customers fell by 2.62 billion in September 2017 as against N14.08 billion, based on data compiled by BusinessDay.
Tajudeen Ibrahim head of research at Chapel Hill Denham said that the loan book expansion will be underpinned by possible financial system liquidity as the central could cut the CRR and interest rates in the first quarter of next year.
“We have seen the apex slow the issuance of OMO. Market conditions will require that they increase lending to the real sector. We will surely see loan book expand on market dynamics,” said Ibrahim.
Credit facilities to the players in finance, insurance and capital market rose by 20.1 percent during the period. Mining and quarrying players got credit facilities 18.7 percent more than what they received in the last quarter of 2016. Also, credit facilities to the construction sub sector were up by 4.1 percent. The governments at all levels received saw their facilities rise by 2.2 percent. The agric sub sector did not get much attention as facilities in the last quarter of 2017 over the last quarter of 2016 rose slightly by 0.4 percent.
BALA AUGIE
