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The start of the first quarter (Q1) 2018 may not be a good start for some finance, insurance and capital markets as bank lending to these markets declined.
The volume of credits to the private financial sector from the banks dropped by 11 per cent (quarter-on-quarter) to N999.5 billion in Q1 2018 from N1.1 trillion in Q4 2017 but increased (year-on- year) by six per cent to N999.5 billion in Q1 2018 from N943.5 billion in Q1 2017, according to the banking credit report released by the National Bureau of Statistics (NBS).
Based on the report, the total value of credit outflow from the banking sector stood at N15.6 trillion as at Q1 2018.This shows a 2.5 per cent decrease (year-on-year) to N15.6 trillion in Q1 2018 from N16 billion in Q1 2017. On a quarter-on-quarter basis, credit outflow from banks declined by 0.6 per cent to N15.6 trillion in Q1 2018 from N15.7 billion in Q4 2017.
Analysts have attributed this to the weak balance sheet and revenue projection of mortgage banks, capital market operators, insurance companies and Microfinance institutions.
“The decline in banking industry credits to other financial institutions may not be unrelated to the financial health challenges and weak revenue profile of these sub-sectors, particularly the insurance and capital markets sub-sectors”, Johnson Chukwu, CEO of Lagos-based financial advisory firm, Cowry Assets, said on phone.
“Unfortunately other financial institutions such as the mortgage banks, capital market operators, insurance companies and Microfinance institutions cannot be said to have rebuilt their balance sheets after the financial meltdown of 2007/2008.The macroeconomic policies, which until recently encouraged investment in government securities also did not help matters as such policies further worsened the prospects of these sectors attracting customer patronage.”
Consequent upon their weak revenue prospects and balance sheets, banks had to keep their credit availment to only a few of the very sound operators in these sub-sectors, hence the decline in banking industry credits to the financial sector,” Chukwu further added.
With the effects of the low credits, borrowers are now looking to Nigerian banks as interest on treasure bills and bonds continue to decline.
“Nigerian banks are facing a decline in interest income in 2018 as interest rates on government-issued T-bills and bonds continue to decline. In fact, Q1 2018 brings to a close a two-year period when Nigerian banks could earn thick spreads between their deposits and the rates available on risk-free government paper. So, it is not a surprise to see interest income under pressure,” An anonymous quote said.
Also analysts are of the opinion that liquidity levels have improved which has reduced interbank lending
Dolapo Ashiru, CEO, Mega Capital Financial Services Limited said, “Interbank lending has slowed down as liquidity levels improved. CBN has eased liquidity tightening which has improved banking sector liquidity. So there is no need for banks to borrow heavily from the others.”
BUNMI BAILEY
