Oil & Gas, Power Dominates as Tier-1 Banks Support African Businesses with N76.9tn Loans

Kayode Tokede

Despite domestic and global economic challenges, six Domestic-Systemically Important Banks (D-SIBs) with operations across Africa, granted about N76.9 trillion loans to customers between 2021 and 2023, findings by THISDAY has revealed.

THISDAY analysis of the banks’ financial report for the period under review showed that ETI, followed by Access Holdings, and Zenith Bank granted the highest loans to key sectors such as Oil & Gas, Manufacturing, Power, Small & Medium Enterprises (SMEs), Real Estate, Information and Communication, among others.

The six D-SIB are: Ecobank Transnational Incorporated (ETI), United Bank for Africa (UBA), Access Holdings Plc, Zenith Bank Plc, FBN Holdings Plc, and Guaranty Trust Holdings Company Plc (GTCO).

For instance, inn 2023 alone, the six D-SIBs granted N36.8 trillion as loans to customers, representing 67.3 per cent increase from N21.99 trillion in 2022, which is 21.4 trillion growth from N18.11 trillion in 2021.

Aside from loans to real sectors, the six D-SIBs withstand challenges to generate N6.06 trillion and N5.05 trillion profit before tax and profit after tax, respectively in three years.

Although, these banks continued to reap bountifully from interest on loan amid elevated interest rates in Nigeria and other countries in sub-Saharan Africa given downside risks from a significant global slowdown, tightened financial conditions, and sovereign vulnerabilities.

The build-up of inflationary pressures eased gradually through 2023 as monetary policy interventions across the continent gained traction, however, downside risks including prevailing structural weaknesses and exchange rate pass-through remain.

In the period under review, ETI’s total loans and advances to customers increased to N19.17 trillion, while Access Holdings recorded N17.3 trillion loans and advances to customers between   2023 and 2021.

In the last three years, Zenith Bank has granted a total of N13.9 trillion loans; FBN Holdings, N13.03trillion; UBA, N7.29 trillion and GTCO, N6.17 trillion loans and advances to customers.

THISDAY gathered that subsidiaries of these D-SIBs in Nigeria and other key West Africa countries have been a driving force behind robust growth in loans to customers in the period under review. 

Take for instance, Access Bank Nigeria granted N5.37 trillion as loans and advances to customers in 2023 financial year from N4.08 trillion granted in 2022 financial year. 

For GTBank Nigeria, its loans and advances to customers closed 2023 financial year at N2.03 trillion, which is 82 per cent of the N2.48 trillion granted in 2022.

Further findings revealed that the six D-SIBs in the last three years have failed to comply with the Central Bank of Nigeria (CBN) Loan-to-Deposit (LDR) policy that mandated lending to key real sectors. 

LDR is used to assess a bank’s liquidity by comparing its total loans to its total deposits.

The apex bank in July 2019, announced an increase in the required minimum LDR to 60 per cent.

Upon review of the results of the policy, the CBN decided to raise the ratio higher to 65 per cent which banks were expected to comply with by the end of December 2019.

The CBN in coming up with the policy sought to trigger growth in a weak economy.

In 2023, Zenith Bank declared 46.5 per cent LDR as against 45.9 per cent in 2022, while GTCO’ Loans to deposits and borrowings dropped to 38.11 per cent in 2023 from 42.89 per cent declared in 2022.

On its part, FBN Holdings declared 62.2 per cent LDR in 2023 from 55.2 per cent reported in 2022 while ETI declared 53.9 per cent Loans-to-deposits in 2023 from 55.40 per cent reported in 2022.

Commenting, the Vice Chairman, Highcap Securities Limited, Mr. David Adnori stated financial institutions are playing a critical role in Africa’s economy development, stressing that their impacts are felt not only in the continent but across the global trade.

Adnori, however, cautioned Tier-1 banks’ about lending to the real sector amid Non-performing Loans (NPL) reduction.

 According to him, “Most of these Tier-1 banks are being careful with the level of their non-performing loans and this is the reason why they have NPL that is below five per cent, which falls within the CBN regulatory requirements.

“The CBN has noticed a remarkable increase in the size of gross credit by deposit money banks (DMBs) to customers. “Accordingly, the CBN has decided to retain the minimum 65 per cent LDR in 2023 but reduced it to 50 per cent. All DMBs are required to maintain this level and are further advised that average daily figures are to be applied to assess compliance going forward.”

CBN in April 2024, announced a downward review of the LDR from 65 to 50 per cent to align with the on-going monetary tightening

An increase in the loan-to-deposit ratio allows banks to expand their credits to businesses and individuals, however, a decline in LDR reduces their ability to loan customers from depositors’ funds.

CBN disclosed the increase in a circular titled, “Re: Regulatory Measures to Improve Lending to the Sector of the Nigerian Economy,” signed by Adetona Adedeji, its acting director of the banking supervision department.

“Following a shift in the Bank’s policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN,” it said.

CBN added, “Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50per cent, in a similar proportion to the increase in the CRR rate for banks. All DMBs are required to maintain this level and are further advised that average daily figures shall continue to be applied to assess compliance.

“While DMBs are encouraged to maintain strong risk management practices regarding their lending operations, the CBN shall continue to monitor compliance, review market developments, and make alterations in the LDR as it deems appropriate.”