Covid-19 lockdown: Futher slowdown in banking sector credit growth

COVID-19 ( coronavirus) has had a direct dampening impact on economic activity in Nigeria through widespread movement restrictions since the index case was uncovered in February 2020.

President Muhammadu Buhari on March 29, 2020 in a nationwide broadcast ordered the restriction of movement in Lagos, Ogun and Federal Capital Territory, Abuja, as a result of the persistent spread of Covid-19 in the country.

The banking industry is not left out in the dampening impact of the Covid-19 lockdown as analysts at FBNquest have anticipated further slowdown in banking sector loan book expansion due to the lockdown, notwithstanding the pressures of the Loan to Deposit Ratio (LDR).

Private-sector credit extension continues to grow at a double-digit rate y/y although the latest data suggest a loss in momentum, according to a report by FBNquest.

The expansion in February has fallen a way behind that for nominal GDP: this will be a concern since financial intermediation in Nigeria lags many peer economies, the analysts said.

Private-sector credit/ GDP remains below 20 percent of GDP, and the authorities will be looking for healthy acceleration.

Related News

“The reporting season for the listed banks for Q1 2020 is shortly to begin, and we look forward to hearing their guidance on loan book expansion,” the analysts said.

According to the report the difference between the M2 and M3 measures of money supply consists of CBN bills held by money holding sectors. These would generally be bills issued within its open market operations (OMO). The difference at the end of February was N4.25trn, compared with N8.06trn at end-november, and the sharp fall is consistent with the exit of offshore investors in OMO bills.

The MPC last month noted an increase of N2.35trn in aggregate credit between end-may 2019 and end-february. It identified the main driver as the cbn’s steady increass in the minimum loanto-deposit ratio for deposit money banks (DMBS), to 65 percent as at end-december. The differentiated cash reserve requirement for banks was a secondary factor according to some committee members.

“It is quite encouraging that most financial soundness indicators have remained strong notwithstanding the rapid expansion in credit –strong Tier 1 capital (88.2 per cent of the total qualifying capital at end-february 2020); relatively low non-performing loans (NPLS) ratio; rising industry capital adequacy ratio (15.0 per cent in February 2020 from 14.5 per cent in December 2019); and growing industry size,” said Edward Lametek, a member of the MPC and former deputy governor of CBN.

He said Sustaining the stability of the banking system continues to be a key policy priority on it own merit and in view of its importance in the economic growth process.

Aishah Ahmad, deputy governor, financial systems stability directorate, noted there are imminent risks to the banking sector arising from the spillover effects of the COVID-19 pandemic.

She said at the last MPC meeting that there was potential default risk by obligors with oil-related repayment sources, or others unable to meet obligations due to the economic downturn, increased concentrationof oil and gas exposures, deterioration in the foreign currency asset book, pressure on capital adequacy from currency depreciation, pressure on liquidity from reduced trading lines and heightened exposure to cyber threats.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.