Banks loan growth masks SME pains

Nigeria’s five biggest banks FBNH, Guaranty Trust, Access, Zenith and UBA, grew their loan books cumulatively by an average of 28 percent or N1.5 trillion in 2014 which at first glance looks like a solid expansion of credit to millions of businesses and consumers.

The lenders’ double digit surge in loans extended, however masks the fact that about 80 percent of it went to large wholesale and corporate customers who often do not number more than 500 per bank, leaving millions of Small and Medium Enterprises (SMEs), struggling to access credit for new businesses or to expand existing ones.

Foreign currency (FX) denominated loans to large corporates in the oil and gas and power sector were also prevalent.

“Big loan growth numbers are being reported well north of 20%, with the proportion of FX in the loan books remaining high: Zenith: 43% FX, 38% YoY credit growth; GTBank: 56% FX, 27% YoY credit growth; and Access: 49% FX, 41% YoY credit growth,” Adesoji Solanke a banking analyst with Renaissance Capital, said in a March 23 note.

A breakdown of Guaranty Trust Bank’s (GTB) loans extended by segments, shows that the lenders 400 plus customers comprising of multinationals and large corporates with revenues above N5bn had N896.38 billion in loans outstanding, compared to N16.66 billion of loans extended to its 150,000 SME customers.

Access Banks loans breakdown by segments, shows the lender extending N568 billion of loans at the end of 2014 to 500 plus multinational and well-structured large companies with revenues over N20 billion, while the bank’s 300,000 SME customers were extended only N32 billion in loans.

A further breakdown shows that 81 percent of Zenith Bank’s gross loan book at the end of 2014 went to corporate and commercial customers, compared to 8.2 percent for retail customers, while 70 percent of First Banks loans were extended to institutional and corporate customers, compared to 22 percent to retail and commercial banking customers.

UBA which has not yet provided a breakdown of its FY 2014 loan book, however said: “the growth in loan book reflects the ramp-up of our corporate loan portfolio, particularly in the Fast Moving Consumer Goods, energy and general commerce sectors.”

Lack of access to credit is a major issue for small businesses in Nigeria.

Nigeria ranked 52 in getting credit, on the World Bank 2015 doing business report compared to 36 for Ghana. Small businesses operating in the country often get up to 90 percent of their credit needs from supplier’s credit, loans from relatives or retained earnings, the World Bank said in a recent report.

Banks are retrenching from extending loans to all but the most blue chip corporates, as an uncertain macro – environment threatens to balloon bad loans.

The International Monetary Fund (IMF) predicts growth of 4.8 percent this year, down from 6.3 percent in 2014.

Nigeria’s February inflation rose to 8.4 percent from 8.2 percent in January, its third consecutive increase since December.

“A major issue around lending to these segments of the loan market is the lack of a credible and broad credit rating bureau, which complicates the risk management process for the banks,” Abiodun Keripe, Head of Research and Strategy at Elixir Investment Partners Limited said.

“In addition… The tight monetary environment which see fixed-income and money market rates remain at elevated levels, acts as a major disincentive to real lending. Tier-1 bank’s can make an 8%-10% plus spread, taking zero-risk while unburdening themselves of the risk management headache tied to the MSME business.”

The Nigerian banking sector may face asset quality, profitability, and potential liquidity pressures in the next year, rating agency Standard and Poor’s (S & P) said last month.

Business Day’s analysis also shows that small firms and individuals are subsidising banks loan extension to large firms.

SMEs banking with Access Bank had more deposits (N174 bn) than loans (N32 bn) as at FY 2014, while the large corporates had fewer deposits (N305 bn) than loans (N568 bn).

The same trend was observed in GTB whose 6.6 million retail and SME customers had deposits of N818.68 bn and loans of only N140.24 bn extended to them, compared with N456.23 bn in large firm deposits and N896.38 bn in loans to the large firms.

PATRICK ATUANYA