Private sector loans by Nigerian banks are only a drop in an ocean when compared with emerging and frontier market countries, which underscores the country’s slowing economic growth.
As at December 2018, Nigerian banks have lent $43 billion to the private sector. That compares with South Africa ($242 billion), Indonesia ($404 billion), Mexico ($422 billion), Turkey ($525 billion), Brazil ($1.15 billion), India ($1.36 billion), and China ($21.92 billion), according to recent data from KPMG.
Economists across the globe have agreed that efficient provisioning of credit has a positive and significant effect on the output and employment opportunities while a low level of financial development and its attendant inefficient private credit system distort economic growth.
The Nigerian economy expanded by 2.28 percent (based on third quarter 2019 figures), which is lower than the population growth rate of 2.61 percent. The country’s per capita income of $2,236 is one of the lowest in the world.
Unemployment rate is at a high of 23 percent while over 50 percent of the country’s 200 million people live on less than $1.28 a day. The country has overtaken India to become the poverty capital of the world.
Inflation rate rose to a 17-month high of 11.85 percent for the month of November 2019 as prices of food items spiked on the back of a border closure by the Federal Government.
The Central Bank of Nigeria (CBN) in October last year hiked the minimum loan to deposit ratio (LDR) for Deposit Money Bank (DMBs) to 65 percent from 60 percent previously in its bid to revive the economy through increasing lending to the real sector and small businesses.
Hitherto, Nigerian banks had been packing their money in risk-free government securities following the sharp drop in crude oil prices in mid-2014 that stoked Non Performing Loans (NPLs) as valued customers were unable to pay back interest on money borrowed.
The average LDR of Nigerian banks stood at 64.34 percent as at September 2019, which is lower than the regulatory threshold.
That compares with Kenya (77.20 percent), South Africa (94.42 percent), India (76.70 percent), Turkey (116.10 percent), Indonesia (93.20 percent), Brazil (70 percent), Eurozone (92.40 percent), and the United States (76.90 percent).
Wale Okunrinboye, investment analyst at Sigma Pensions Limited, said these countries did not go through the oil predicament that stoked the NPLs of oil producing nations and that LDR for Nigerian banks was high in the pre-crisis period (2014).
“A lot of issues came up in 2018. For instance, the introduction of the International Reporting Standard (IFRS) 9 changed the computation fundamental ratios,” he said.
The apex banks’ home-grown heterodox policies are stimulating credit as lending to manufacturing from May to end of October 2019 totalled N45.70 billion, the most in two decades, according to Godwin Emefiele, CBN governor.
Banking sector’s credit to private sector rose to N25.47 trillion in September, setting a new record for the year, a new report by the CBN revealed.
BALA AUGIE
