By Obinna Chima
Fitch Ratings has said that the high credit growth in sub-Saharan Africa (SSA) rated countries primarily reflects the expansion of the financial sector and rapid economic development.
Fitch stated this in its latest Macro Prudential Risk Monitor (August 2012), which aims to identify the build-up of potential stress in banking systems obtained Tuesday.
It disclosed this, just as the Central Bank of Nigeria (CBN) announced plans to launch the Financial Inclusion Strategy (FIS) and the Micro, Small and Medium Enterprises Development Fund (MSMEDF) on October 23.
The report highlighted rapid real credit growth to the private sector in some African countries.
Among the 15 countries rated by Fitch in the continent, eight recorded annual real credit growth above 15 per cent between 2009 and 2011, which was said to have triggered the Macro Prudential Index (MPI) of at least two (moderate risk). The countries were Angola, Cameroon, Gabon, Kenya, Lesotho, Mozambique, Rwanda and Uganda.
The report explained: “Rising credit to Gross Domestic Product (GDP) primarily reflects the expansion of the financial sector from a low starting point. The SSA median credit to GDP is 21.6 per cent, even lower than the 'B' median (27.7 per cent). Credit has been growing especially rapidly in countries where private sector credit to GDP is small (e.g. Ghana, Angola and Mozambique).
“Most SSA countries are low or lower-middle-income (Gross National Income per capita below $4,035) and need more, rather than less, credit to finance development. Poor access to credit is often cited as a key impediment to growth in business conditions surveys. The main constraints to credit expansion are low incomes, informal activity and weak institutions.
“On the demand side, high credit growth has been associated with high real GDP growth. Before 2008, countries recording the highest GDP and credit growth were oil producers (Angola, Ghana and Nigeria), and Uganda and Zambia. Countries that have been assigned an MPI of two or more are also the ones that recorded a strong rebound in GDP growth after the 2009-2010 slowdown. Ghana and Zambia, which are both likely to record an increase in MPI from one to two at end-2012, are also benefiting from rapid commodity-led GDP growth,” it added.
Fitch pointed out that monetary policy has generally been tightened this year, which, according to the report, should constrain credit growth despite limited monetary policy transmission to private sector credit conditions. Similarly, it said banks’ lending policies have also become more conservative.
Continuing, the CBN in a notice posted on its website, stated that President Goodluck Jonathan is expected to inaugurate the MSMEDF prepared by the apex bank in Abuja.
“Mr. President will be supported at the launching by Princess Maxima of the Netherlands who will be visiting Nigeria on the invitation of the CBN from October, 22 to 24. Princess Maxima is the United Nations (UN) Secretary-General’s Special Advocate for Inclusive Finance for Development.
“Concurrently, the regional meeting of the Child and Youth Finance Initiative for Africa and the Peer Learning Programme of the Alliance for Financial Inclusion (involving 17 participating countries) will also hold from October 23 to 24,” the CBN added.