Nigerian deposit money banks (DMBs) appear cautious of the solid minerals sector, data from the National Bureau of Statistics (NBS) show.
Of the total credit allocated by banks to private sectors of the economy in fourth quarter (Q4) 2018, mining got the lowest.
Different sectors of the economy got a total credit of N15.13 trillion in the review period, out of which mining and quarrying got N20.7 billion or 0.14 percent, according to an NBS report on the Banking Sector Credit to Private Sectors in Q4, 2018.
Although the 0.14 percent recorded in Q4, 2018 was a considerable improvement from Q3 when lending to the mining sector was 0.04 percent, it still shows the extent of neglect suffered by the mining sector.
Banks complain of lack of organisation, poor data and bankability of the industry. As such, the sector gets fewer loans as artisanal miners claim they are unable to access even the N30 billion intervention fund provided for the sector.
Shehu Sani, president, Miners Association of Nigeria, told BusinessDay recently that the sector is poorly funded.
The unattractiveness of the mining sector to investors is partly responsible for the low patronage as potential investors weigh the cost and risk involved. Also, the nature of the mining industry makes it difficult for outsiders to understand it.
“Our banks are always running away from any sector they feel is risky, and they always identify mining as one of the risky sectors,” said Sani.
“Banks have not provided support, maybe because they do not understand the industry,” Patrick Odiegwu, partner, Anthracyte Limited, a general earth science company, told BusinessDay recently.
Muda Yusuf, DG, Lagos Chamber of Commerce and Industry (LCCI), said the mining sector is still not attractive to investors because the cost of investing in the sector is still very high.
Because of the risks involved in investing in the mining sector, banks are not willing to risk their money in the sector.
“No bank wants to expose its credit to a very risky sector. The sector is too risky,” Yusuf said.
Akinade Olatunji, general secretary, Nigerian Mining and Geosciences Society (NMGS), said the banks are not lending also because of the long-time investment required in the sector.
“We know the kind of money banks want to make immediately. Mining sector isn’t ‘a quick win’ sector. The gestation period of investment in the mining sector is a bit longer than the normal service or in normal manufacturing sector. So, Nigerian banks are configured towards quick profits. That’s the basic problem,” Olatunji said.
The absence of reliable geological information about the locations of different mineral resources available in the country also adds to making the sector very risky.
“We don’t have facilities to determine the locations of all these mineral resources because there are specialised equipment to get very good geological information as to what mineral exists and where,” said Yusuf.
“Government needs to do something concrete to mitigate the risk of investing in the sector,” he said.
The experts said many banks are still ignorant about the mining sector, which is why the capacity to evaluate the risks in the sector is lacking in most of the financial institutions.
“Even the banks don’t have much knowledge about mining sector. They don’t have much competence. If you want to lend money to a sector, you must have a good understanding of how the sector works and operates,” Yusuf said.
“You expect that when they don’t have information, they wouldn’t want to dabble into that area,” Olatunji said.
Commercial banks usually turn down loan requests from investors because they (banks) are not always willing to give money for mining operations in Nigeria, BusinessDay gathered. The only lending to the sector seems to come from the Federal Government-owned Bank of Industry.
“I’m aware that investors are approaching banks regularly but they don’t receive favourable response from the banks. It’s only the Bank of Industry that’s trying to put together some money in the mining sector,” Olatunji said.
Reminded that lending to the mining sector improved from Q3 to Q4 2018, Olatunji said further checks would reveal it is actually BoI that gave the loans and not the commercial banks.
“The commercial banks are running away from mining, seriously, which is not good,” he said.
But a few bankers who spoke with BusinessDay debunked the claims, saying banks’ unwillingness to venture into the mining sector has to do with the sector’s informal approach and the uncoordinated nature of mining activities in the country. The bankers spoke anonymously for business reasons.
“Mining sector isn’t regularised and formalised in Nigeria. Most of the miners are illegal. And you don’t expect banks to do business with illegal people,” said a bank manager in one of the new generation banks.
“We haven’t seen a document showing the direction of mining industry in Nigeria. If we see, we’ll invest in the sector. So, we don’t understand how the sector works,” said another banker.
Confronted with the allegation that banks run away from the sector because of the long-term nature of investment, the banker said, “Show us the project. If it’s viable, we’ll invest in it. Time duration isn’t the issue.”
