FBNQuest analysts see Nigerian banks lending pick up in H2

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Despite a N300 billion drop in the amount banks lent to the private sector between the first and second quarters of 2018, analysts at FBNQuest are predicting a marginal growth that would reach high single-digits in the second half as banks attempt to improve their lending.
Loan growth dropped in the first half of the year with banks lending N30.9 trillion to the private sector as against N31.5 trillion that they lent in the last half of 2017.
Selected Nigerian Bureau of Statistics banking sector data for Q2 2018 show that loans extended by deposit money banks (DMBs) to the private sector was N15.3 trillion compared to Q1 2018’s figure of N15.6 trillion, and according to FBNQuest analaysts DMBs have been betting on Nigerian treasury bills (NTBs) against real sector lending because they are risk-free. However, they say this will change in H2.
“DMBs continue to maintain a cautious approach towards lending to the private sector, to avoid growing non-performing loans. Furthermore, despite the lower margins on NTBs, banks still prefer them because they are risk-free,” they said.
They added that, “In H2 2018, we expect loan growth to pick-up to high single-digits as banks attempt to improve on H1. Upstream oil and gas, trade & commerce, as well as manufacturing are likely to be beneficiaries.“
The report shows that the oil and gas sector was the largest recipient of loans from DMBs, accounting for 22.5 percent of total credit. Despite that, lending to the sector has been muted even though foreign exchange depreciation has resulted in a slightly higher percentage share for the sector, the analysts further said.
The second largest recipient of loans was the manufacturing sector, which accounted for 13.2 percent of the total in the same period, compared with 13.3 percent recorded the previous quarter.
Based on the national accounts, manufacturing growth slowed to 0.7 percent year-on-year in Q2 from 3.4 percent the previous quarter. The decline could be attributed to soft consumer demand.
Agriculture received just 3.4 percent. The CBN offers multiple interventions to support the sector and compensate for the poor supply from the DMBs but these are insufficient to meet its high demand for credit.

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