In spite of the improvements in business activities as well as the recovery recorded by the Nigerian economy, banks have continued to be wary of lending to the public as the loan books of most banks declined in the first three months of 2018. While the total loan books of eleven banks stood at N15.385 trillion by December 2017, it dropped to N14.346 trillion in the first quarter of this year, a contraction of about 6.75 per cent. The total banking sector credit to the public, according to data released by the National Bureau of Statistics (NBS), stood at N15.7 trillion as at December 2017. The Nigerian economy has gradually moved out of recession with the Gross Domestic Product (GDP) recording positive growth. Although GDP growth in the first quarter had slowed by 13.4 per cent, it remained positive as GDP grew by 1.94 per cent. Inflation rate has also been on a steady decline, dropping to more than a two year low of 12.4 per cent in April this year. Business confidence in the country has also improved from a negative, which it had been since 2016, to a positive of 17.7 per cent, rising alongside oil prices.
The price of crude oil, which is a major revenue source for the country, has been on the rise in recent times, selling at $74 per barrel and giving a boost to the foreign exchange market. The Nigerian foreign exchange market has witnessed stability on the back of the rising oil price as well as increased inflow from the Investors’ and Exporters’ window. However, of the 11 banks, comprising Access Bank, Zenith Bank, United Bank for Africa, FBN Holdings, Sterling Bank, Ecobank, Stanbic IBTC, Diamond Bank, Fidelity Bank and Union Bank, only one recorded an increase in its loan book. Sterling Bank, which had a loan book of N589.073 billion at the end of the 2017 financial year, increased its lending by 1.95 per cent to N609.785 billion in the first three months of the year.
On the contrary, the loan book of Zenith Bank dropped by 25.2 per cent from N2.349 trillion by December 31, 2017, to N1.757 per cent at the end of the first quarter of 2018. Analysts at FSDH Merchant Bank had earlier in the year projected that banking sector credit would rise by N1 trillion or 6.34 per cent to N16.7 trillion in 2018 from the 2017 figure of N15.7 trillion. According to them, the manufacturing sector is expected to attract the highest credit as challenges faced by the agricultural sector would make it difficult for it to attract more credit from the banks while uncertainties about the fuel subsidy may constrain lending to the petroleum sector. Analysts note that the high interest rate being charged by banks may also be a deterrent to lending, as lending rates released by the Central Bank of Nigeria (CBN) revealed that some deposit money banks (DMBs) in the country charge their customers as high as 49.50 percent per annum as interest rate. The Monetary Policy Committee of the CBN had held benchmark lending rates at 14 per cent at the end of its last meeting in May, citing delay in the 2018 budget and upcoming election. The CBN governor, Godwin Emefiele, said although the Committee considered cutting down on the MPR to stimulate aggregate demand through lower cost of credit, members were worried the outcome would likely exacerbate inflationary pressures.
According to him, lowering the benchmark lending rate may not necessarily translate into lowering market lending rate on account of high cost of doing business, but may lead to higher pressures on the exchange rate as the demand for foreign exchange increases, pushing real rate into negative territory.
