Banks could accelerate credit extended to the private sector if policymakers implement reforms that would drive economic growth.
Analysts say it is practically difficult to dissuade lenders away from parking their money in high-yielding government securities. They add that yields will continue to be attractive so long as the central bank (CBN) continues its aggressive liquidity mop-up to curb inflation.
“You are supplying securities and you are telling banks to stop buying them,” said Omotola Abimbola, associate and investment research analyst at Chapel Hill Denham.
“The risk environment is not structured in a way that will favour lending. Banks make decision on asset allocation based on the structure of the economy and they have been risk-averse in creating loans. Loan growth has been negative since the crisis of 2014 and 2016,” Abimbola said.
Data compiled by BusinessDay shows the largest lenders made a combined N245.64 billion in interest from investment securities in March 2019, a 29.15 percent increase from N190.20 billion recorded the previous year.
However, that compares with a 12.95 percent reduction in interest income on loans and advances to N353.15 billion in March 2019 from N405.71 billion as at March 2018.
During the last Monetary Policy Committee (MPC) meeting, Godwin Emefiele, CBN governor, said the MPC wants the lender of the last resort to provide a mechanism for limiting the ability of banks to put customers’ money into government securities.
Emefiele argued that credit to the private sector should improve since Non Performing Loans (NPLs) are down to below 10 percent compared to 17 percent a year ago.
Net credit by lenders to the government surged 64 percent in the first four months of the year vs 9.60 percent for the private sector.
Nigeria’s economic growth slowed in the first quarter after the oil sector, the country’s biggest foreign-exchange earner, contracted.
Gross domestic product (GDP) expanded by 2.01 percent in the three months through March 2019 from a year earlier, according to the National Bureau of Statistics (NBS). That compares with 2.4 percent expansion in the fourth quarter of 2018.
Wale Okunrinboye, investment analyst, Sigma Pensions Ltd, argues that banks will continue to pack significant amount of money in their balance sheets into liquid assets since the Cash Reserve Ratio (CRR) and liquidity ratio are high.
“But can the apex bank bring down interest rate? If you want a stable currency your interest rates has to be attractive. You can’t eat your cake and have it,” he said.
Okunrinboye said the movement of yields depends on the price of crude oil and foreign exchange stability and that if the price of crude falls to $50 or below, then interest would go up because the CBN would engage in aggressive Open Market Operations to curb inflation and stabilise the economy.
Onyeka Ijeoma, research analyst at Vetiva Capital Management, said structural issues like lack of comprehensive database and the rigour of collateral registration have hindered banks from lending to the real economy.
“Those things need to change for credit to improve, but I don’t see the CBN doing that. Even if they make some sort of policies to discourage investment in treasury bills, it will not work because of structural issues,” said Ijeoma.
Nevertheless, some banks are beginning to tiptoe into retail lending as competition in the industry intensifies.
Zenith Bank, Nigeria’s No. 2 lender by assets, expects retail credit to account for about 4 percent of its book in 2019 from less than 1 percent last year, by making a bigger push into personal loans, car financing and mortgages.
Union Bank of Nigeria plc sees an expansion of as much as 12 percent in its loan book this year by increasing credit to small-and medium-sized firms, women and technology companies.
Fidelity Bank plc is targeting a 20 percent increase in customer numbers this year.
BALA AUGIE
