While there was a marginal pick up in banks’ private sector loan in the third quarter of 2020, lenders’appetite to increase credit was muted in the third quarter as they treaded softly amid a challenging business environment and economic uncertainty occasioned by the novel coronavirus which ushered Nigeria into its second recession in five years.
Loans extended by deposit money banks (DMBs) rose by 6 percent to N19.87trillion in Q3’2020, compared with N18.82trillion the previous quarter, according to data obtained from the National Bureau of Statistics (NBS).
“The quarter-on-quarter increase of just 6percent can be attributed to the more cautious approach adopted by banks due to the macroeconomic headwinds triggered by the ongoing pandemic,” analysts at FBNQuest Capital Research
Out of the 15 sectors analysed by BusinessDay, agriculture, construction, finance, insurance & capital market, and transport & storage were the only sectors that saw an increase in their bank credit as a share of total credit.
Analysis of the Q3 Selected Banking Sector Data series, from the National Bureau of Statistics (NBS), shows that the oil and gas sector accounted for 25.8percent of total credit in Q3.
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“Most banks have restructured their loan books to accommodate moratoriums, tenor extensions and interest rate reductions for some oil and gas companies, according to analysts,” a Lagos-based research analyst said.
The manufacturing sector, which accounted for 15.3percent of the total credit in the review period, was the second-largest recipient of loans in Q3. The sector has benefitted from increased credit extension by the banking industry. According to the CBN, as of November, loans granted to the manufacturing sector amounted to NGN738bn.
Loans extended to the agriculture sector accounted for 5percent of the total in Q3; it grew by 3.2 percent quarter-on-quarter and 39 percent year-on-year.
“DMBs are naturally wary of a pick-up in non-performing loans,” analysts at FBNQuest said.
Further analysis of the NBS data shows that Non-performing loans stood at N1.17trillion at end-Q3, compared with N1.21trillion in Q2. Based on data from the statistics office, sectors that had the highest NPLs in Q3 were oil and gas, construction and general commerce; they accounted for 20 percent, 15percent and 13percent of total NPL respectively.
Meanwhile, at the latest meeting held in November, the monetary policy committee left its policy unchanged at 11.5percent. According to the CBN, the decision to hold the rate is beneficial to allow current policy measures to permeate the economy. This includes stimulating lending by the banks, even though the mechanism for monetary policy transmission is weak.
To boost economic growth in Africa’s most populous country, the central bank gave its banks a choice: lend more money, or hand it over to the central bank and earn nothing on it.
Banks should use at least 60 percent of their deposits for loans by the end of September, the central bank said on July 3, according to a circular seen by BusinessDay. Those that don’t will have their cash-reserve requirements increased, meaning they will be forced to park more money at the central bank.
Fast forward to three months after, and in its bid to foster economic growth through injection of sufficient credit into the real sector of the economy, the apex bank raised the threshold to 65 percent. The economic downturn among other factors chiefly caused the banks not to meet with the threshold.
According to the Credit Conditions Survey Report released in September by the CBN, there was an increase in loan requests for household purchase as well as for corporate credit but the proportion of loan applications approved by Nigerian lenders decreased as lenders try to manage their risk exposure.
“Lenders’ resolve to tighten the credit scoring criterion decreased the proportion of approved unsecured loan applications in Q2 2020,” the CBN said.
The Q2 credit report by the apex bank shows that lenders reported increased demand for corporate credit from all firm sizes in the three months to June and expect demand to rise further throughout the year.
Ikemesit Effiong, Head of Research at SBM Intelligence says, even though the Central Bank has given lenders the directive to give out loans, they have to hedge their risk to ensure that they do not erode their profits.
“The task of determining who more credit is worthy has become significantly challenging for these financial institutions”, Effiong said.
Further breakdown of the data series from NBS Q3 Selected Banking Sector report shows that credit allocation by state places Lagos as the primary recipient in the review quarter. This is likely as a result of the fact that Lagos is the commercial hub of the country as it accounted for 78percent of total credit allocated in Q3. Meanwhile, Rivers and Abuja accounted for 5percent and 3percent of the total respectively in the same quarter.
In contrast, credit allocation to states like Yobe, Kebbi and Jigawa represented less than 1percent of total credit allocation in Q3.
“Looking ahead, we do not expect high loan growth from the DMBs, at least until there is a visible pick-up in economic activity,” analysts at FBNQuest Research Capital said.
