CBN, banks intensify lending to economy

It was a giant step taken by the Central Bank of Nigeria (CBN) and the bankers’ committee last week to intensify lending to the economy.

The latest report of the National Bureau of Statistics (NBS) shows that loans extended by deposit money banks (DMBs) totaled N15.1 trillion in the fourth quarter (Q4) 2018, compared with N15.6 trillion the previous quarter.

“There is still a risk-driven reluctance of financial institutions to lend to the private sector (especially to SMEs), and the lack of acceptable collateral by the banks’ definition has also contributed to difficulties in accessing finance”, said analysts at FBNQuest.

Deposit Money Banks (DMBs) maintain a cautious approach towards lending to the private sector, to avoid growing non-performing loans (NPLs). According to the NBS, the total of NPLs as at Q4 2018 stood at N1.8 trillion.

However, after the bankers committee meeting chaired by Godwin Emefiele, CBN governor, the CBN and the banks announced a decision to establish a N200 billion intervention fund for export businesses.

Over the past twelve quarters the oil and gas sector has emerged as the largest recipient of loans from DMBs. In Q4 2018 the sector accounted for 23.5 percent of total credit.

“Lending to this sector has been subdued, which we attribute to the restructuring of existing loans to longer tenors”, the analysts said.

The second largest recipient of loans was the manufacturing sector, which accounted for 14.7 percent of the total, compared with 13.8 percent the previous quarter. Access to credit remains a challenge for most manufacturers. However, FBNQuest notes that large manufacturing firms are preferred recipients of the limited loans available bfrom banks.

Agriculture received just 4.0 percent, slightly higher by 20bps when compared with the previous quarter.  The CBN offers multiple financial interventions targeted at farmers and agriculturists. Although laudable, given the sector’s high demand for credit, these interventions have had limited impact.

“We doubt that loan growth will pick up significantly, at least not until the new administration provides a clear policy direction. Furthermore, banks continue to tread cautiously regarding NPLs”, the analysts at FBNQuest added.

The CBN has made several interventions in various sectors such as power, aviation, real sector refinancing, and micro, small and medium enterprises, among others.

The 10 year tenure loan is targeted at boosting palm oil, cocoa, sesame seeds, shear and cashew exports as well as the creative industry.

On the benefit of the intervention fund, it is expected to helped generate employment, boost economic activities and bring relief to foreign exchange issues.

Kennedy Uzoka, managing director/CEO of UBA who said this while briefing the media after the bankers committee meeting in Lagos said the findings of sub-committee set up by the bankers committee after its annual retreat in December 2018, was that the industry has a lot of policies but the challenge has been on execution.

Consequently, the committee broke down the challenges into seven broader areas, part of which include finance, logistics and policies.

“In terms of the policies that drive export, we believe that a lot of them needs to be changed and we know about the congestion at the port, so we looked at all these things and grouped them into mediate, mid-term and long-term because some we cannot address within a very short period”, Uzoka said.

Herbert Wigwe, group managing director / CEO of Access Bank plc, who spoke on the creative services and IT sectors, said a lot more work has been done and that there are four verticals of the sector which movies, music, Information and Communication Technology (ICT) and the fourth is fashion.

“What we have decided to do it to take it to the next level which is basically to revisit the entire value chain of each of these verticals, right from the production facilities – all the way to the last mile in terms of capacity building, making sure that whatever is produced along each of the verticals is such that is of world class standard”, Wigwe said.

He said the bankers committee has got the final nod to take the initiative to the next level. “By next week there will be some advertorials out in the market for eligible people who want to participate in each of the verticals”, he added.

Wigwe said it is a big initiative which will do a couple of things to the country. As a starting point, he said it will lead to about 300, 000 employment in five years time, as well as lead to a significant  accumulation of foreign exchange and significant  savings.

Ahmed Abdullahi, director banking supervision of the CBN, said the economy had recorded positive development in spite of the headwinds before the 2019 election period.

He said lending to the private sector and the economy generally  had increased,adding that $6 billion came into the country from foreign investors after the 2019 general election.

Abdullahi said the committee decided to consolidate on the gains and continue with those initiatives that brought about the growth.

He identified such innovative as import substitution programme, anchor borrowers programme among others.


Hope Moses-Ashike

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