Manufacturing, services, household sectors to drive bank lending next decade

Nigerian banks are expected to diversify their risks and tap into lending opportunities in manufacturing, services and household sectors in the next 10 years, according to Afrinvest Securities Limited.

Specifically, the expanding income level and middle-class population suggest a viable market to create household/individual financial products along residential and non-residential housing, vehicles and credit cards.

Bank lending to household sector accounted for an estimated 7 percent relative to Malaysia where more than half of the industry credit goes to the household in form of residential and non-residential properties, vehicles and credit card.

Though the rebasing of Nigeria’s Gross Domestic Product (GDP) revealed a marked shift of the productive base to services by 51 percent, and manufacturing sector 9.3 percent, the banking industry is yet to catch in given that one-quarter loans are still allocated to the mining/natural resources sector, relative to other comparable countries like Indonesia 3.8 percent, Brazil 2.1 percent, and Russia 2.4 percent.

Ike Chioke, CEO of Afrinvest, is concerned that Nigerian banking sector is yet to tap into the opportunities in lending to household despite the growth in household income and middle-class population in the last decade.

He imagines that the low level of credit to household in Nigeria to the high interest rate limiting access of customers, and limited amount of household financial products by banks.

“Our prognosis is that lending structure in the next decade should reflect the changing economic structure as banks take advantage of the faster growth rate and expanding opportunities in the non-oil sector of the economy.

“We believe banks will need to diversify from mining/mineral resources to the utilities, manufacturing and services, including household, real estate, education, health, transport, and communication sectors,” Chioke said in Lagos, at the official unveiling of the 2015 Nigerian Banking Sector Report launch and 20th anniversary celebration of Afrinvest.

However, analysts at Afrinvest believe that government policies to promote home ownership and increase wage rate are needed to buoy lending to the sector. They also believe that gradual reduction in interest rate will increase access, and a change from the present risk-averse culture of banking, innovation in household consumer products and removal of hidden charges will strengthen banking participation in the household sector.

The report analysed the lending structure of Nigerian banks across Tier-1 and Tier-2 to identify the distribution of loans across key sectors of the economy.

Consequently, it observed that the lending structure across both Tiers followed a similar pattern, except in three sectors; highlighting that funding and asset size are not a major determinant of sectoral allocation of credits by deposit money banks in the country.

The report also revealed that loan books of banks across both Tiers are mainly concentrated in the oil and gas sector, comprising of the upstream, downstream, midstream, and oil and gas service industries.

“We do not expect banks to reduce funding of the oil and gas sector, rather, we expect banks to deepen funding structure by taking advantage of leverage to grow their presence in non-oil sector,” he said.