Boosting Economic Recovery Through Loans
The long-standing need to strengthen capital structures has become more urgent, Nume Ekeghe writes on commercial banks’ drive to boost lending to the real sector.
Globally, banks are renowned to be engines of economic growth. They mobilize funds from areas of surplus to areas of needs as well as give interest to the depositors and charge interest from the borrowers, thereby providing income for those who have idle funds, and earning income from those that borrow money to finance their businesses.
The long-standing need to strengthen capital structures and to decrease dependence on borrowing has become more urgent, as many firms are obliged to increase leverage in order to survive the recent economic and financial crisis. Indeed, the problem of SME over-leveraging may have been exacerbated by policy responses to the crisis, which tended to focus on mechanisms that enabled firms to increase their debt (e.g. direct lending, loan guarantees).
While bank financing will continue to be crucial for the SME sector, there is a broad concern that credit constraints will simply become “the new normal” for SMEs and entrepreneurs. It is therefore necessary to broaden the range of financing instruments available to SMEs and entrepreneurs, in order to enable them continue to play their role in investment, growth, innovation and employment. Without a doubt the full potential for ensuring the expansion of entrepreneurs can be viewed from the performance of SMEs.
Access to Credit
Small and Medium Enterprises (SMEs) are seen as critical segments of thriving economies. Nigeria was no exception as the economy slipped into recession for the second time in four years as oil prices plunged in the midst of the COVID-19 pandemic. While bank financing will continue to be crucial for the SME sector, there is a broad concern that credit constraints will persist for SMEs and entrepreneurs.
To guard against this occurrence, experts called on financial institutions to expand the range of financing instruments available to SMEs and entrepreneurs. This, they said, would enable them continue to play their role in investment, growth, innovation and employment.
During the turbulent economic situation where businesses suffered under the weight of COVID, insecurity and other economic challenges, a few banks were upstanding and served as adequate life-line to businesses helping the economy surmount its economic challenges.
Banks’ Drive to boost lending
Access to credit has, therefore, become very important, especially in a time of crisis, exacerbated by the COVID-19 pandemic, with economies all over the world badly hit.
One of the banks worthy of mention is United Bank for Africa. The bank was innovative enough to help businesses in Nigeria and across Africa weather the storm with several loan facilities that helped change the narrative and eventually catalyse growth.
The best performers in terms of lending to businesses in first quarter of the year include United Bank for Africa (UBA) Plc, Access Bank Plc, FBN Holdings Plc, FCMB Holdings Plc, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, and Wema Bank Plc. It is worthy of note that UBA did well to pull its weight firmly behind business in 20 African countries which helped in a great way to keep them afloat at a turbulent time occasioned by COVID 19 and inflation from the Ukraine / Russia war.
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 like UBA is poised to 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.
COVID-19 Impact on Lending
Speaking on the bank’s recent loan position and consequent determination to buy the nation’s SME sector, Group Managing Director, Oliver Alawuba said “Our passion for Small Businesses and great ideas has never been in doubt and is evident in the firm support given to individuals and business as our loan products are tailored specifically to meeting the varying needs of all our customers.
Continuing, Alawuba said, “Despite the tumultuous impact of Covid-19 pandemic globally and across our 23 countries of operation, we created N519.0 billion additional loans as we continued to support our customers and their businesses. Customer deposits grew 48.1% to N5.7 trillion, driven primarily by additional N1.8 trillion in retail deposits. As a global bank, we remain well capitalized and determined to successfully drive financial inclusion on the continent through our innovative products and vast network. Our capital adequacy and liquidity ratios came in at 22.4% and 44.3%, well above the respective regulatory minimum of 15.0% and 30.0%.
Speaking on the bank’s strategy, he said, “Our primary strategy will continue to focus on providing excellent services from our customers’ standpoint, putting the customer first always. Looking ahead, I am inspired by the achievements we have made since the launch of our transformation programme. We have expanded market share considerably across the geographies where we operate and are consolidating our digital banking leadership in Africa. We will continue to leverage our diversified business model and dedicated workforce to further strengthen our position as ‘Africa’s Global Bank’.”
Lending at Affordable Rates
Also on the performance, the Group Chief Financial Official, Ugo Nwaghodoh said, “The persistent low interest rate environment in 2020 exerted significant downward pressure on margins. Notwithstanding, our interest income for the year grew by 5.7% (to N427.9 billion), driven by 8.2% and 7.5% year-on-year growth on interest income on loans and investment securities respectively. Our interest expense declined by 8% (to N168.4billion) driven largely by a 34.2% decline in interest expense on customer deposits in our Nigerian operations, bringing down the Group’s cost of funds to 2.9%, from 4% in 2019.
While giving an insight to the bank’s array of loan products changing the dynamics in the industry, Group Head Consumer Lending, Anant Rao recently spoke about some of the products and intrinsic benefits to customers as he said Senior Citizens Loan is designed to support Pensioners within the ages of 55- 70 years. They can get up to N10 million to start a retirement project, travel the world and do much more and repay conveniently within 36 months. Rao further explained that no collateral was required to access the loans. There is also the UBA Personal Loans, Auto Loans, Asset Finance, Mortgage.
Special Loans for Special Needs
As for Personal Loans, Rao said: “It is a product designed to aid the finance of the daily needs of our customers. Available to employees whose salaries and other emoluments are being paid through UBA or who are willing to transfer their accounts to UBA.
“Here, required documents include letter of introduction and awareness from employer, copy of customer’s staff ID, copy of customer’s Valid ID, duly accepted offer letter and duly filled loan application form.’’
He explained that Asset Finance, one of its products, was designed to facilitate the purchase of physical assets ranging from household appliances to alternative power solutions and devices by our retail customers through approved partnering vendors, giving them the convenience to pay over a period.
The bank listed the required documents as letter of introduction and awareness from employer, copy of customer’s staff ID, copy of a customer’s valid ID, proforma invoice in UBA/customer’s name and duly filled loan application form as well as accepted offer letter.
“UBA Mortgage Loan is a product designed to part-finance the acquisition of residential real estate by salary earners whose employers are listed on the bank’s approved counterparty list. “The product is targeted at High-Net-Worth Individuals (HNIs) with predictable and sustainable income. The product is to enable customers buy fully developed properties or draw equity from their home as loans for specific purposes,” the bank said.
He added, The UBA Personal Loan Direct is a variant of UBA Personal Loan product targeted at civil servants whose salaries are not domiciled with UBA. The product is designed to offer personal loans to civil servants who have difficulties in changing their salary accounts from other banks to UBA. This loan is available to Federal civil servants that are enrolled on IPPIS platform, state civil servants (this will be limited to states whose salaries are managed by ICT firm). The required documents include duly filled loan application form, a copy of customer’s staff ID, a copy of customer’s valid ID and customer’s instruction letter.
“UBA FX Cash Backed Loan is a term loan designed for Nigerians who are resident in Nigeria or Abroad and have a funded domiciliary account with the bank. Customers can get up to N10 million for investment purposes or to meet the financial needs of relatives in Nigeria. The required documents include; Funded domiciliary account, Duly completed loan application form, valid means of Identification (international passport, national driver’s license, national id card and voter’s card).
“Also, the UBA Working Capital loan offers up to N50 million to help business owners meet their cash flow needs and expand their business. A flexible collateral cover will be required depending on the loan amount and the nature of customer’s business. This loan product is targeted at customers with verifiable credit net worth whose cash flow patterns meet the requirement for lending and other structured groups/business clusters. There is also the UBA Asset Finance for SMEs, the UBA School Loans and the UBA Health Loan.
“It is a medium-to-long term facility aimed at meeting working capital, asset and mortgage needs of registered privately-owned schools. The bouquet comprises a four-month time loan, a three-year asset finance loan and a 10-year mortgage loan.”
“Other variety of loan offerings tailored specifically to meet the needs of different individuals also include; Auto Loans where customers can get up to N15 million for part-financing of brand new vehicles for customers whose salaries are domiciled with the Bank. Vehicles purchased will be in the name of UBA/Customer’s name and they are available for all car models at selected dealer shops nationwide. The Required Documents are as follows; Letter of introduction and awareness from employer, copy of customer’s staff ID, copy of customer’s valid ID, Proforma invoice in UBA/customer’s name, duly filled loan application form and accepted offer letter.
“With a UBA Credit Card, customers are free to spend up to N3 million and have the option to pay as low as 0% interest when they repay within 45 days. UBA customers can withdraw cash both locally and internationally, make online bill payments, shopping, hotel reservations and enjoy amazing discounts at partner restaurants & hotels, lounge access, etc across the world, “the bank said.