Eight banks gave out loans and advances worth N760 billion in the first quarter (Q1) of 2021 in a bid to stimulate economic growth constrained by numerous headwinds, according to data compiled by Flavision.

The banks are: Access Bank Plc, FBN Holdings Plc, FCMB Holdings Plc, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, United Bank for Africa (UBA) Plc, Wema Bank Plc and Zenith Bank Plc.

The lending figures, collated from the unaudited results of the banks, showed that Zenith Bank Plc led with N260 billion, which raised its loans and advances portfolio to customers to N2.841 trillion at the end of Q1, up from N2.581 trillion at the end of December 30, 2020.

UBA followed with N178 billion in the three months under review to put its loan portfolio to customers at N2.733 trillion, from N2.555 trillion.

Stanbic IBTC gave out N105 billion loans to customers, making its total portfolio as at the end of Q1 to be at N730 billion, up from N625 billion in December.

FBN Holdings Plc gave out N82 billion as loans to customers, raising its portfolio from N2.217 trillion to N2.299 trillion, while FCMB lent N63 billion during the review period, thereby bringing the bank’s loan portfolio to N886 billion, up from N823 billion in December. Access Bank Plc accounted for N38 billion to bring its loan portfolio to N3.256 trillion compared to N3.218 trillion, while Wema Bank Plc gave out N8 billion in the Q1 to end with a loan portfolio of N368 billion, from N360 billion.

Commenting on the credit to customers by banks, a financial expert and securities dealer, Mr. David Adonri of Highcap Securities Limited, said short-term credit was required by businesses to finance their working capital.

Banks are the source of this type of finance. As a result of risk management considerations, bankability of requests is a major factor in credit creation. Of course, banks will usually observe the canons of lending when granting credits. If the economic environment is conducive and prospect is bright, the confidence to grant credit to borrowers will be high because repayment is guaranteed,

he said.

According to him, the volume of credit granted in Q1, 2021 by banks rose because of increase in economic activities.

Fund users demanded more credit during the period to ramp up their products and services to cover increased consumer pull. The demand on banks for credit also resulted in increased borrowing by banks from Central Bank of Nigeria (CBN) during the period.

The supply gap in the economy is still huge and this will increase demand for bank credit. As a result, banks will create more credit this year to meet the rising Gross Domestic Product (GDP) growth rate revised from 1.5 per cent to 2.7 per cent,

he added.

Another financial market analyst, Abiola Rasaq, said the relatively strong loan growth reflected the minimum loan-to-deposit ratio policy of the CBN, attendant punitive cash requirement, moral suasion and renewed appetite of banks to lend to the real sector, as yield on risk-free instruments plunged to near-zero last year.

It is also pertinent to note that the banking sector credit growth was partly funded by the various CBN intervention schemes, including the Real Sector Intervention, Target Credit Facility, Anchor Borrowers Programme and Healthcare Support Intervention amongst others. Interestingly, gross banking sector credit further grew N850 billion or 3.7 per cent to N23.5trillion in the Q1 of the year, reflecting the improved appetite of banks to lend to the real sector,

he stated.

Razaq attributed the unprecedented credit expansion, amidst uncertainties that characterised the past 18 months, to both demand and supply factors.

On the credit supply side, the banks had to resort to risk asset creation to protect interest margins and profitability, as yields on risk-free sovereign instruments plummeted to near-zero, a phenomenon which reinforced the need for banks to search for higher yields in core intermediation business.

More so, banks had to accelerate loan growth to meet the minimum loan-to-deposit ratio requirement of the CBN or risk the punitive CRR, which meant CBN sterilising their funds at no interest, a regulatory fiat which encumbered over 40 per cent of some banks’ deposit. Further reinforcing the strong loan supply was the various intervention schemes of the CBN; banks, including microfinance banks, played notable on-lending/intermediation role in fulfilling the last mile for the CBN intervention schemes,

he said.

He added:

On the demand-side, corporates sought to take advantage of the historically low-interest rate environment in expanding their production and service lines. Whilst the macro and social uncertainties may have undermined appetite for business expansion and corporate investments in the period, entrepreneurs and business leaders, with deep understanding of the Nigerian socio-economic environment and long term investment philosophy considered the challenges as a part of the inevitable macro cycles of a developing market, hence reinforcing their appetite to make good use of the unprecedented access to credit at business-friendly interest rates in repositioning their business ahead of economic recovery.

Though, with modest impact, the pandemic also stimulated credit demand and indeed supply to the healthcare sector, including pharmaceuticals, as COVID-19 reinvigorated the need to invest in the ailing healthcare system.

According to him, loan growth may be relatively tapered, as the sovereign yield curve rises and banks seek new opportunities in this low-risk asset class, thus undermining the appetite for loan growth.

He said:

For instance, yields on bonds have “doubled” year-to-date, with the yield on long-term 30-year sovereign bond rising from seven per cent levels in December 2020 to 14.2 per cent as at Friday, 28 May 2021. More so, as banks re-price loans to reflect the higher interest rate environment, the demand for loans may falter, particularly as investment-grade borrowers may have largely expressed their loan appetite through the money and debt capital markets in the past 18 months.

Anecdotally, banks may also be cautious of asset quality and capital positions going forward, thus moderating appetite and headroom for credit growth.

Even so the banking sector Non-Performing Loan (NPL) ratio moderated 71 basis points year-on-year to 5.89 per cent in April 2021, the nominal value of NPL may be rising, hence putting off the risk-on sentiment of banks, especially as the lagged impact of the weak macros may also season out in the form of higher loan delinquency in the quarters ahead.

Also, inter-bank and overall system liquidity is moderating, hence lowering the pressure in the loan supply taps. In addition, given the notable dollarisation of banks’ loan portfolio, the relative weakness of the Naira may put further pressure on banking sector’s capital adequacy ratio, which stands around 15.8 per cent, though higher than the minimum requirement. Thus, the loan growth in the quarters ahead may moderate to low single-digit.

Justin Nwosu

Justin Nwosu is the founder and publisher of Flavision. His core interest is in writing unbiased news about Nigeria in particular and Africa in general. He’s a strong adherent of investigative journalism, with a bent on exposing corruption, abuse of power and societal ills.