Lending may improve as banks NPLs moderate to 11.68%

The high non-performing loans (NPL) in the Nigerian banking industry has significantly moderated from a peak of 16.21 per cent in February 2018 to 11.68 per cent in December 2018.

“This moderation in NPLs, if sustained, would encourage banks to increase lending to the economy, which has remained challenging during the year”, Sanusi, Aliyu Rafindadi, member of the Monetary Policy Committee (MPC) said in his personal statement at the last meeting.

At about 2.0 percent, private sector credit (PSC) growth was significantly below the target of 12.4 percent.

Godwin Emefiele, governor of the Central Bank of Nigeria (CBN) note the unsatisfactory pace of PSC and continue to emphasise the importance of enhanced credit flows to strategic private sector ventures through an effective collaboration of all stakeholders.

“I remain aware of the risk aversion of banks to supposedly high risk real sector ventures”, Emefiele said in his personal statement.

“Yet, improvements in banks NPL position and our continuing efforts at de-risking the target activities are steps in the right direction.

“We expect that this could begin to bolster domestic investment, household demand, and aggregate productivity, while accelerating economic diversification, and ensuring strong and inclusive growth”.

Members of the MPC noted in their personal statements that the financial sector has been stable and resilient during the year. The total assets of the banking industry have increased by N2.67 trillion representing an increase of 6.55 per cent between December 2017 and December 2018.

The unemployment rate has remained stubbornly high at 23.10 per cent as at the third quarter of 2018, compared with 22.73 per cent during the previous quarter.

They were impressed that exchange rates have been broadly stable in 2018. The average rate at the Investor and Exporter (I&E) window slightly depreciated from N360.53 per USD in January 2018 to N364.76 per USD in December 2018, representing a depreciation of 1.13 per cent. The exchange rate was even more stable at the BDCs segment where it depreciated by only 0.07 per cent from N363.20 per USD in January 2018 to N363.46 in December 2018.

“I see sufficient scope and merit in a well-tailored capital expenditure in the key sectors of the economy, while reducing subsidies. Hopefully, the manage-float regime will strengthen external reserves buffers, ensure greater flexibility of the exchange rate and guarantee foreign exchange liquidity”, Joseph Nnanna, deputy governor said in his personal statement.

Edward Lametek Adamu, deputy governor, said, the developments in the interbank market somehow suggest that the sterilization actions of the Bank have remained very effective in reining-in excess liquidity. It is important that such actions should continue to be a component of monetary management in 2019 as liquidity threats do not appear to be abating any time soon. Keeping domestic liquidity in check is important not only for inflation, but also for the stability of the naira exchange rate.

 

HOPE MOSES-ASHIKE