Equity analysts see decency in growth of private sector total credit

Charles Abuede

FBNQuest equity analysts have lent their voices to the decent growth in bank lending volumes to the private sector, saying that it is decent as the credit level to the private sector accelerated to 24.4 per cent, year on year in July.

“This rate indicates the fastest in about 8 years (September 2012). This is well ahead of nominal GDP growth, which the authorities will welcome since Nigeria lags its peers by a margin for this metric,” the analysts said in a note.

According to the latest money and credit statistics from the Central Bank of Nigeria (CBN), the total banking sector credit to the private sector rose by N757 billion to N30.2 trillion while credit to the government accelerated from N8.86 trillion to N9.52 trillion in July 2020.

The acceleration, the analysts said, can be traced to rises in CBN’s minimum loan-to-deposit ratio for banks since Q3 2019, as well as measures introduced by the apex bank to cushion the effect brought about by the coronavirus crisis on households and the MSMEs, in which the banks are the participating financial institutions in this development.

In July, after the monetary policy committee meeting in Abuja, they said they had noted a 21.4 per cent increase in gross credit to N18.90 trillion in the 13 months to end-June, from N15.6 trillion. This last figure for DMBs, according to the analysts, is more than N11 trillion short of the total for July in the CBN’s broader series. They explained that the difference is largely due to the CBN’s own increasing credit interventions and lending by the state-owned development banks.

However, the data series for the DMBs’ lending by sector runs to March and showing healthy increases of N760 billion (34.1%) and N700 billion (71.3%) over 12 months in loans to manufacturing, the second-largest destination of bank credit, and general services respectively. Though for oil and gas, which is the leading destination, the rise was far smaller, and for power and energy, there was no change.

On the other hand, the CBN has pushed back what may or may not be inevitable with its encouragement of forbearance with borrowers, they stated, and the banks have responded with requests to restructure large sections of their loan books, out of which the CBN noted in July that only 22 banks out of 27 have restructured the loans of about 35,640 of their customers, which accounts for 41 per cent or N7.8 trillion of the total N18.90 trillion.

Several equity analysts will be of the opinion that rapid credit growth brings a surge in NPLs. But the apex bank has cited that granting forbearance helps in resolving the doomsday scenario. Hence, that helps to keep businesses and companies alive in the face of the pandemic.

Meanwhile, the data obtained from the CBN website revealed that total bank reserves climbed to N11.03 trillion by the close of July from N10.96 trillion the previous month.