Banking Sector Credit Predicted to Hit N16.7tn in 2018


Obinna Chima

Analysts at FSDH Merchant Bank Limited have projected that banking sector credit to the private sector will rise to N16.7 trillion this year.

This, according to their prediction would represent a growth of 6.34 per cent compared with the N15.7 trillion recorded in 2017.

The firm held the view that the manufacturing sector would attract the highest credit this year, further adding that the uncertainties surrounding the fuel subsidy in the petroleum marketing sector may lead to a contraction of credit to that sector.

FSDH Research made the prediction in a report obtained by THISDAY.
It noted that the improvement in the macroeconomic and business environment; improved consumers’ confidence; and the drop in the yields on the Nigerian Treasury Bills (NTBs) would be the main drivers of the expected credit growth.

The provisional figure that the National Bureau of Statistics (NBS) released for fourth quarter 2017 had shown that the banking sector credit to the private sector dropped from N16.1trillion in fourth quarter of 2016, to N15.7 trillion in fourth quarter of 2017.

Although the total credit as at the end of 2017 was higher than the figure of N13.1trilion in fourth quarter 2015, the impact of the devaluation of the local currency may be responsible for the growth in 2017 over 2015.

The sector with the highest credit allocation as at the fourth quarter of 2017 was mining and quarrying, and petroleum marketing, which accounted for 28 per cent of the total banking sector credit to the private sector.

This was followed by manufacturing 14 per cent; general services 18 per cent; and trade, seven per cent.
Also, agriculture which contributed about 29 per cent of the Gross Domestic Product (GDP) in Nigeria in third quarter 2017, attracted three per cent of the total credit.

“Our findings show that the agriculture sector in Nigeria is faced with many problems. Thus, the sector is unable to attract the required
credit. “Some of the problems are: inadequate storage facilities; poor transport network; inadequate research to develop improved seedlings; and weak integration between the sector and the manufacturing sector in providing manufacturing inputs.”

The CBN Governor, Mr. Godwin Emefiele had assured Nigerians that the central bank would continue to explore measures that would see that
interest rates are supportive of domestic production.
According to him, the Bank would continue to fine tune measures to ensure and guarantee a stable exchange rate regime.

Emefiele had pointed out that with on-going recovery in economic performance, he was optimistic that improved outcomes would be recorded in the central bank’s work towards taming inflation, bringing down interest rates and guaranteeing exchange rate stability.

He disclosed that the CBN has been consistently devising ingenious approaches to solve peculiar challenges and would continue to learn from the experiences of other countries, particularly developing nations.

According to Emefiele, interest rates are a major incentive (or disincentive) to carry on industrial production activities.
They are the key price for capital and largely determine the ability to engage in profitable domestic economic ventures.

Economic theory dictates that low interest rate will boost incentives to procure loans to engage in production, and vice versa.
He therefore noted that it was imperative that authorities endeavor to keep interest rates at reasonably low levels.

More so, he stressed that the rate of inflation is a major determinant of the level of interest rates, adding inflation erodes the real returns on financial assets (denominated by interest rates) and it is necessarily required that such rates should be above the price index in other to guarantee real positive returns.

The CBN Governor pointed out that the lower the monetary authority is able to keep inflations rates using monetary policy, the lower it can force down interest rates and make it more attractive for users of
funds to access credit.