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Cautious Approach to Credit Extension

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Wednesday, December 20, 2017 /09:36AM / FBNQuest Research 

The impact of Nigeria’s economic downturn was severely felt in 2016. Although the outlook for the economy is now relatively stable post-recession, a cautiously optimistic approach has been adopted by banks on lending to avoid a surge in non-performing loans. 

The National Bureau of Statistics recently released a report, Selected banking sector data, for Q3 2017, drawn from the CBN. This report highlights banking sector credit to the private sector which totaled N15.8trn in Q3 2017.

The banks favoured sector, oil and gas, accounted for the largest share (22%) of DMB’s credit allocations in Q3. The second largest recipient of loans from commercial banks was manufacturing which accounted for 14% of the total in the same period. 

Agriculture, which has been identified as a growth engine for the economy by the FGN and the consensus of development economists, received just 3.1%. We doubt the sector will expand as quickly as it should if access to credit remains low - a major challenge for agriculturists. Although laudable, the interventions by the CBN are not sufficient. 

Meanwhile, lending to the real estate and construction sectors represented 5% and 4% respectively. For the former, mortgage financing remains expensive in Nigeria. 

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A recent analysis of Nigeria’s credit allocation, based upon official data, showed that 83% of total lending was above N1bn. This points towards limited financial inclusion. 

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