- Credit decline in economy calls for great concern—analyst
- Bank directors should settle their credit commitments — shareholders
Five Deposit Money Banks, belonging to the Tier-1 financial Institutions, have reported N876.463billion reduction in their loan and advances to customers, from N10.601trillion in 2017 to N9.724trillion for the nine months ended September, 2018.
This was in the face of persisting difficulties in the macroeconomic environment, as well as uncertainties in the political atmosphere.
The banks which effected significant reductions in their level of lending to businesses are Ecobank Transnational, FBN Holding, Zenith Bank Plc, United Bank for Africa and GTBank Plc.
Bank’s loan portfolio
A breakdown of the loan exposure of the banks showed that ETI for instance, recorded the biggest reduction in its loan exposure to the private sector with -8.9 per cent in its loan and advances to customers to N3. 077,854trillion in the nine months ended September, 2018, from N3.379, 363trillion in the period under review.
FBN Holding followed with -3.83 per cent reduction to N1.924, 540trillion in 2018, from N2.001, 223trillion in the comparable period of 2017, while Zenith Bank effected-13.12 per cent cut in loan portfolio, to N1.824, 724trillion in 2018, from N2.100.362trillion in the review period of 2017.
UBA reduced its loan exposure by 2.64 per cent to N1.627,338trillion in 2018, from N1.671,531trillion in 2017, and GTBank reported a decline of 12.32 per cent in loan exposure to N1.270,093trillion in 2018, from N1.448,533trillion in that order.
Market pundits who spoke with our correspondent, said banks are scaling down their loan portfolio either by recalling existing, unexpired facilities or non-renewal of expired ones or even lesser approval of new credit lines.
They explained that the allocation of funds in favour of treasury instruments appears a defensive strategy against loan failures. Thus, the banks are sacrificing profit for safety since returns on direct credit to businesses are higher, while yields on treasury instruments have tumbled in the last one year.
They noted that banks’ preference for investment in financial assets stemmed from the harsh operating environment, which has made credit advancement to the real sector even more precarious.
Macroeconomic challenges
On why banks are reducing credit to the private sector and investing more in government debt instruments, a financial analyst, Mr. Richard Akpan, said many reasons are likely to be responsible for banks’ emerging credit service delivery behaviour.
According to him, banks are business organisations, which seek profit and do everything to avoid losses.
“With the rising cases of non-performing credits and the resultant losses, banks would like to avoid going in that direction,” he said.
He explained that government financial security instruments, which are risk-free, have been enjoying good coupon rates for a long period of time.
“Rather than risk their money by granting loans to private businesses, banks feel satisfied leaving them in the hands of the government, knowing that there would be no loss, after all,” he
added.
A Professor of Financial Economics, Leo Ukpong, attributed bad loans in banks to the poor performance of the Nigerian economy.
“It is unarguable that a significant proportion of bad loans in banks are as a result of poor state of the economy and government’s inability to settle most of its indebtedness to its domestic creditors most of whom borrowed money from banks to execute governments’ projects,” he said.
He explained that from the foregoing, it is not difficult to appreciate why banks are reluctant to increase loans to private businesses on one hand and increasing their investments in government financial instruments on the
other.
“Whatever the reasons for the rationalisations are, the truth remains that credit decline in the economy calls for genuine concern, if this continues, the fearful prospect of sliding back into recession (having just marginally exited from it a few months ago) is real,” he
added.
Managing Director/Chief Executive, Cowry Asset Management Limited, Mr. Johnson Chukwu, warned that the economy needs every investible fund it can mobilise, not only to sustain and expand existing businesses but also the creation and development of new ones.
“There are even more implications too. If banks’ credits are frozen or reduced, productivity will be adversely affected,” Shukwu said.
On his part, the Managing Director/CEO, APT Securities and Funds Limited, Garba Kurfi, said the introduction of the Treasury Single Account, which has reduced the funds available to the banks for on-lending and difficulty in the economy have combined to frustrate fund flows from banks to
businesses.
“Two things are involved; because of this TSA, the amount of money available to the banks to lend has diminished considerably. Secondly, the economy, generally, is not performing well and so, the risk of giving out loans has increased considerably. So, the banks are very conservative now in that respect. If you take those factors into consideration which is why the quantum of loans they are granting has reduced,” he
said.
The National Bureau of Statistics also indicated that banks are still reluctant to lend to the private sector because some structural challenges that have, hitherto, hindered banks’ credit flow to the private sector need to be addressed in order to encourage banks to lend in the high risk space.
Shareholders critical on economic growth
But a leader of shareholders group, and financial market analyst, Mr. Boniface Okezie, said the real sector of the economy needs to be adequately funded to optimise productivity for the growth and development of the
economy.
“The experiences of rising non-performing credits challenge banks to take a closer look at their risk acceptance criteria, with a view to recalibrating same to minimise loses. Bad loans should not be used as justifiable reasons for banks to stall credit delivery to private businesses that hold the key to the economy,” he said.
He maintained that the Central Bank of Nigeria and other regulators in the banking and finance sector can only be encouraged to review the subsisting regulatory demands on banks to identify and resolve constraints to more banks’ credits to the private
sector.
“The government should make the operating business environment better going forward. It should settle its domestic creditors to keep alive the financial life-line. Other bank debtors, especially bank directors, should settle their credit commitments forthwith to reduce the amount of non-performing loans.
“These will bring more money into the banks and ensure a corresponding capacity to grant more credits to needy private sector businesses” he said.
