Banks are to continue with their conservative approach to credit growth in 2019 as the combination of high yield environment and macroeconomic uncertainties have hindered them from turning on the tap on lending.
Experts are of the view that lenders will remain majorly on the side-lines pending the outcome of the forthcoming election. They added that a reversal of policy due to change in leadership could expose financial institution to the high risk environment.
The cumulative loans and advances of 13 largest banks that have released third quarter 2018 results fell by 4.66 percent to N13.70 trillion, from N14.37 trillion the previous year, according to data gathered by Markets Intelligence.
The fastest loan growth was recorded in 2013 and 2014 when loans and advances were up 21.78 percent, and the economy had not been hit by a precipitous drop in crude oil price that paralyzed business activities.
In the period between 2014 and 2015, combined loans and advances of banks under our coverage fell by 1.46 percent, as crude price had begun to take its toll on the economy.
Banks are expected to be cautious in extending credit to the oil and gas, as they are grappling with rising non-performing loans. Tier 2 lenders, with weak capital buffers, could not weather the storm of the headwinds.
“Partly driven by the impact of IFRS 9 implementation on credit portfolios (following the one-time write off), as well as a still cautious stance on risk asset creation, average loan book growth across our coverage was negative for most of 2018, with loan portfolios down -4% on average as at 9M’18,” said analysts at Vetiva Capaital Management Ltd.
An economic growth could motivate lenders to lending to the critical sectors of the economy.
Nigerian economy has been growing at slow pace as GDP expanded by 1.80 percent in the third quarter, this compares with 2.10 percent recorded in the fourth quarter of 2017.
Inflation for the month of December stood at 11.44 percent, this represents a 16 basis point increase from 11.28 percent November figure.
“We are of the view that two factors may constrain a hasty deployment of funds to risk assets. Firstly, events in the global environment may keep yields on treasury securities elevated,” said Analysts at United Capital Research.
“Secondly, depending on the outcome of the election, a delayed post-election policy signal may imply that uncertainty in the local economy will persist,” said analysts at United Capital Ltd.
The continued rate hike by the United States Feds and the trade war between China and the U.S has caused equity sell off in developed and emerging market economies.
Zenith Bank’s loans and advances were down 11.78 percent to N2.36 trillion in September 2018 from N2.67 trillion as at September 2017.
Access Bank’s loans and advances were up 1.04 percent to N2.08 trillion in September 2018 from N2.06 trillion the previous year.
Guaranty Trust Bank (GTBank) Plc loans and advances fell by 12.34 percent to N1.27 trillion in the period under review as against N1.45 trillion as at September 2017.
Ayodeji Ebo, managing director and CEO of Afrivest Securities Ltd said for banks to turn on the tap on lending, government will have to derisk the economy.
