Nigerian Banks: Driving Economic Growth in Tough Times

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Nume Ekeghe

Nigeria’s economy is growing in reverse at this time, backtracking to an 11 year low with GDP sliding to 2.11 percent in January 2016.
“It is the lowest growth rate since at least 2005 as lower oil prices keep hurting the oil sector, dragging government revenues down and weakening the naira”, according to tradingeconomics.com, an online data base on global economies.

While all sectors of the economy especially Agric and other non-oil sectors contributed their fair share to the economy, it was the banking sector that oiled the growth with advancing credit to the economy.
Nigerian banks typically advance as much as 75.33 percent of their deposit portfolio (which is the Central bank threshold) as loans to lubricate the economy, according to the 2015 BMI report, a situation Fitch expects to remain healthy according to February 2015 report.

“Despite increasing competition for low-cost and stable deposits, customer deposit growth should remain healthy and help loans-to-deposit ratios remain below the regulatory limit of 80 per cent,” says Fitch in a recent affirmation ratings of the sector.

Available statistics from the National Bureau of Statistics (NBS), trading economics.com and BMI, though showed a fluctuation in Nigeria’s loan to GDP ratio, the latest figures revealed an uptrend while still keeping non performing loans at the barest minimum.

Domestic credit provided by the banking sector crashed to 10.1 percent in 2000 from 23.7 percent in 1990, rose to 35.7 percent in 2010 and is put at 21.7 percent in 2014, the last date for which figures are available.
Domestic credit to the private sector however, rose to 12.5 percent in 2000 from 9.4 percent in 1990, further vaulting to 29 percent in 2010 before receding to 14.6 percent in 2014.
The emerging figures demonstrate that banks are not paying mere lip service to lending to the economy; their imprints can be seen from oil and gas, agriculture, SMEs and the real sector.

Oil and Gas Sector

Most Nigerian banks have extended loans to the oil and gas sector, which is the nation’s number one forex earner and therefore its mainstay.
According to Oxford Analytica, a London-based consulting firm, Nigerian banks allocated 23.8 percent of their loans to the oil and gas sector in the first half of 2015, up from 10 percent in the previous year. The three largest banks in asset terms – Zenith Bank, Guaranty Trust Bank and First Bank of Nigeria – grew their oil and gas portfolios by 101 percent, 47 percent, and 37 percent, respectively in 2014, Oxford Analytica stated.
First Bank for example, has thrown in over N1.47trn loans to that sector as of 2014. The bank funded Petrolog’s acquisition of a brand new ABS classed Dynamic Positioning (DP2) Dive support Vessel “DSV Vinnice”.
The vessel, which is 85 metres long with a beam of 22 meters is the largest indigenously owned DSV in its class and is capable of providing diving, offshore construction and field support.

Skye Bank has been particularly supportive of indigenous participation and growth of the oil sector, financing OML field developments, acquisition, gas projects as well as storage and barges among others. The Bank has issued SBLCs to guarantee cash calls of Exploration and Production companies, participated in the financing of engineering, procurement, installation and construction of a liquid hydrocarbon transportation pipeline, financing of a 200mmscf per day gas processing plant, and several field development activities, amongst many others. Skye Bank’s investment in support of local production and processing capacity in the upstream oil and gas sector is said to be in the region of USD550m (over N100bn). It also provides financing support for major oil and gas traders.

To grow its Oil and gas portfolio, Zenith Bank recently signed a $100 million loan from the International Finance Corporation (IFC).
The group managing director/chief executive officer, Zenith Bank Plc., Peter Amangbo, described the deal as a way of exploring “business opportunities in strategic sectors that will bring the much needed development to boost Nigeria’s economy”.

Manufacturing/Real Sector
One of the examples of support for the manufacturing sector is Access Bank’s support for Peugeot in its vehicle acquisition finance scheme. The partnership allows prospective and existing customers to own any brand of Peugeot car. The arrangement may ultimately ensures success of the made in Nigeria call by the Federal Government.

Skye Bank has demonstrated sterling support for the manufacturing and real sector of the Nigerian economy by extending credit to several real sector operators, including many of the top names in the paharmaceutical sector, food and confectionary industry, chemical and agro allied industry, aluminium and steel industry, amongst others. It has financed major facility upgrades, plant and capacity expansion and working capital support. Portfolio reports of the bank indicate that it has expended over N80billion in financing support for the real sector of the economy. This undoubtedly has contributed to the creation of several jobs and growth in the economy.

SMEs
Banks have also significantly impacted small business, championing CBN’s Small business policy.
According to the CBN, the Small and Medium Enterprises Equity Investment scheme is a voluntary initiative of the Bankers’ Committee in response to the government’s concerns and policy measures for the promotion of Small and Medium Enterprises (SMEs) as vehicles for rapid industrialisation, sustainable economic development, poverty alleviation and employment generation.

The Scheme requires all banks in Nigeria to set aside ten (10) percent of their Profit After Tax (PAT) for equity investment and promotion of small and medium enterprises. Under the terms of the guidelines (as amended in July 2016 by CBN), the contribution will be 10% of profit after taxation. However, this is no longer mandatory. The SMEEEIS Reserve are non-distributable, as such many deposit money Banks may choose not to make any appropriation thereof.

That notwithstanding, only last year the CBN earmarked N220 billion for Micro, Small and Medium Scale Enterprises Development (MSME) fund.
First Bank, in a recent post said the Bank has been a consistent promoter and supporter of the SMEs and some of the Bank’s interventions for SMEs include Overdraft for working capital, Operational Vehicles Loans; e.g. School Bus, Delivery vans, Equipment Finance, Commercial Building Loan, Education Management Portal, Contract & LPO Finance, Invoice Discounting Finance, Import Finance, Bonds & Guarantees, Bill & Tax Payments, Bulk Payment & Collections Solutions, e-Commerce Platforms, Non-Oil Export Financing, Domestic Money Transfers, Zero COT Accounts, Non-Oil Export Financing, Import Finance Facility, Key Distributorship Finance (Cement, Telco, FMCGs) among several other products.

Speaking recently, Mr. Babatunde Lasaki, Head Media and External Communications at the bank, said in the last five years, the bank had extended a lot of financial support to small businesses across the country.
“In addition to that, we have done for women led SMEs, media SMEs and different sectors of the economy and in every branches that you go to, you have an SME desk you can actually get advice services for free. And then we do train SMEs from time to time,” Lasaki said.
He also said the bank was focused on capacity development, which was why it went into partnership with various SME training schools, organise seminars, educate operators and aspiring business owners through its regular radio programme.

In addition, he said the bank sponsors an SME startup show on CNN.
Another Bank, which has shown commitment to SMEs, is Zenith Bank; the bank has obtained several international facilities to commit to SMEs. For instance, not long ago, it obtained an AfDB N21.3bn and an IFC $100 million facility to throw at small businesses across the country.

Skye Bank has been at the vanguard of not only providing funding for SMEs, it has consistently taught business owners how to manage their businesses in seminars and workshops across the nation.

The bank recently announced that it has disbursed the sum of N500 million loan to Small and Medium Enterprises (SMEs) under the Central Bank of Nigeria’s (CBN) Micro, Small and Medium Enterprises (MSME) intervention fund.
Commenting on the development, the bank’s Group Managing Director/Chief Executive Officer, Mr. Timothy Oguntayo, said that the lender would continue to partner with small business owners who are interested in creating value and contributing to the development of the country.

He said that beyond loans, Skye bank had put structures and modalities in place to make the SME sector the true driver of development by helping the operators to overcome their problems and grow their businesses through its sector-based seminar series (Skye Business Seminar) initiative to improve the financial, marketing and managerial skills of the business owners in partnership with affinity groups like BDSPs etc., nationwide.
The Bank is to be one of the biggest supporters of SMEs in the banking industry. It is also working with the International Finance Corporation (IFC), to develop non-traditional collateral options outside real estate properties for SMEs to reduce the difficulty faced by business owners in their bid to secure credit facilities from banks.