Weak bank lending threatens Nigeria’s growth trajectory
By Nigeria’s economic growth trajectory is being threatened by commercial banks’ refusal to lend to small businesses, according to analysts.
BusinessDay’s analysis of the bank credit data from the National Bureau Of Statistic(NBS), lending to the private sector declined by 2.5 percent (year-on-year) to N15.6 trillion in the first quarter of 2018 from N16 trillion in the first quarter of 2017.
“The main challenges for investors are on the front of liquidity. How can Nigeria increase liquidity in the near future? Nigeria is looking better on most metrics, having accelerated growth, a stable currency and rising FX reserves, but needs to improve on bank lending which remains weak,” Charles Robertson, Global Chief Economist, Renaissance Capital said.
Analysts have also said that the weak bank lending which is already lowering production will eventually lead to inflation.
“Bank lending is to the government rather than to the private sectors so if you are relating lending to output, it means output have actually suffered significantly and that could be the cause of inflation. The problem is not really price inflation a result of excess demand, the fundamental problem is that of productivity and output,” Bismarck Rewane, CEO, Financial Derivatives Company Limited said.
The Central Bank of Nigeria (CBN) during its monthly Monetary Policy Committee (MPC) meeting held on Tuesday has noted that banking lending is a problem in the country are creating innovative ways to improve bank lending in the economy.
Godwin Emefiele, the CBN governor said, “We will try as much as possible to come up with some credentials that will relate loan deposit ratio with the level of cash reserve that the banks hold. For banks that have done a lot of work in increasing its loan deposit ratio we will be compensating them with cash reserve ratio (CRR) and penalize those who prefer to keep liquidity and trade on government securities or direct them to the FX market rather than grant loans to the real sector.”
Analysts have however expressed divergent opinions.
“Liquidity will most likely come from three sources, government budget, elections spending, and the increase in minimum wage, which have the potential to drive inflation higher. In term of output, If going forward, liquidity in the banking sector increases as a result of lower cash reserve ratio(CRR), the only way it can have positive impact on growth is if banks lend more to the private sector,” Ibrahim Tajudeem, Head of Research, Chaphill Denham said on phone.
He further noted that having to force banks to lend is not the way to go. Banks, he says, should be allowed to lend to the private sector based on their risk appetite.
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