Structural weaknesses in economy, political risk behind flagging loan growth - United Capital

DECLINES IN LOANS by lenders has been attributed to structural weaknesses in the general economy and rising political risks as against high interest rates, which has been viewed as precluding borrowers, according to analysts at United Capital, an investment banking firm.

The United Capital analysts acknowledged efforts by fiscal and monetary authorities to boost private sector credit and spur economic growth, adding that credit issues in the country go beyond interest rates, and that such issues lie greatly on growing political risks and structural weaknesses in the overall economy.

“Our view remains that despite efforts by the authorities to boost private sector credit, the appetite for loan growth among banks remains poor due to rising political risk in the interim and structural weakness in the broader economy.”

Specifically, the Debt Management Office (DMO) has created more room for private sector participation in the domestic debt market, issuing a $2.5 billion Eurobond early in February 2018 with another $2.8 billion in the coming future.

The Central Bank of Nigeria (CBN) has equally encouraged deposit money banks (DMBs) via moral suasion to lend to the real sector, especially manufacturing and agriculture at a rates below monetary policy rate of 14 percent through the Real Sector Support Facility.

Despite these efforts, recent data from the CBN suggests that DMBs’ total credit to private sector as at August 2018 declined by 1.8 percent year-on-year, although rose by 1.4 percent month-onmonth to N15.5 trillion in August 2018.

The agricultural sector continues to be favoured, as total banking credit to the sector grew by 13.2 percent year-on-year and 3.8 percent month-on-month. However, credit to the manufacturing sector declined 12.4 percent year-on-year although rose marginally by 1 percent month-on-month.