Credit allocation to favour the few
Although Nigeria’s economy has emerged from its technical recession, its macro challenges have not dissipated. As such, a cautiously optimistic approach has been adopted by banks on lending. The CBN’s Quarterly Statistical Bulletin for Q2 2017 shows total private sector credit by banks’ contracting by –0.5% q/q and expanding by just 1.1% y/y. The slowdown in loan growth is partly due to banks’ preference for the elevated yields well in excess of 20% for longer tenors that were recently available on the NTB market. However, those yields have started to dip in response to the CBN’s signal of lowering the stop rates at its auctions.
· There was a marginal decline in the banks’ favoured sector, oil and gas. Lending to the sector contracted by -4.8% q/q but increased by 2.6% y/y. The q/q contraction is not surprising when we consider that, given the slide in oil prices since mid-2014, many operators have had to restructure existing loans.
· Agriculture, which has been identified as a growth engine for the economy by the FGN and the consensus of development economists, received just 3.3% of DMB’s credit allocations at end-Q2.
· Meanwhile the Quarterly Statistical Bulletin shows a marginal pickup of 3.7% q/q in total credit allocated to the manufacturing sector in Q2. The credit status of manufacturers has been enhanced by the CBN’s multiple currency practices since their access to imported inputs has been transformed.
· A recent analysis of Nigeria’s credit allocations, based upon official data, showed that 83% of total lending was allocated to credit lines above N1bn. This is scenario of limited financial inclusion, in which the obvious losers are start-ups and SMEs.
· We doubt that loan growth will pick up significantly in the near-term as most banks continue to tread cautiously regarding non-performing loans.