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Declining lending to real sector

The recent revelation by the National Bureau of Statistics (NBS) that Money Deposit Banks (MDBs) in the country have been reluctant in extending loans to the agriculture and manufacturing sectors of the economy should, although not totally surprising or  be of major concern to every stockholder in the Nigerian project, the trend should be regarded as worrisome

NBS is particularly worried that the decline in loans and advances to the two critical sectors of the economy has continued to decline since 2016, one year after the administration of President Muhammadu Buhari came into power.  The Bureau had revealed that loans to the private sector declined from the N16 trillion recorded in the first quarter of 2017 to N15.34 trillion in the corresponding period of 2018, a shortfall of N600.6 billion.

Tagged selected banking sector data: sectoral breakdown of credit, ePayment channels and staff strength (Q2 2018),  the report returned a damning verdict on the banks, revealing that there was a steady decline in loans to the private sector for six consecutive quarters starting from the first quarter of 2017.

A breakdown of the total of N63.27 trillion credit provided by the banks in 2017 to finance the activities of the private sector shows that N16 trillion was made available in Q1. The second, third and forth quarters had N15.7 trillion, N15.83 trillion and N15.74 trillion, respectively. The report indicated that banks lent N15.6 trillion to the private sector in Q1 of 2018 dropping to N15.34 trillion in Q2 of 2018.

The concern here is that while the advances to the oil and gas sector  increased from N3.42 trillion in Q1 to N3.45 trillion in Q2 of 2018 as against the drop in finances to the manufacturing sector from N2.07 trillion in Q1 to N2.02 trillion in Q2 0f 2018.

Conversely, credit to government increased to N1.47 trillion from N1.41 trillion within the period under review. Loans to the real estate sector suffered the same fate as the agric sector as it declined to N744.56 billion in the Q2 of 2018 from N784.23 in Q1.

Our major interest in the downward trend in the availability of funds to the productive sectors of the economy is to bring to the fore, one of the major factors why the current administration will continue to find it difficult if not impossible to keep faith with its many promises to Nigerians among  which are job creation and security of lives and property. The very high cost of running the government as per recurrent expenditure is weighing down heavily on the populace who are being denied  of the basic necessities of life. That the Federal Government has continued to compete for funds in the  domestic market with the private sector stands as one of the factors militating against the growth of the nation’s economy.

Agreed that banks are private sector enterprises established primarily to, among others, making profits for their shareholders, they are modelled to function as catalysts for the growth of nation’s economies hence the banks, at times, skew their loan portfolios to deliberately favour certain critical sectors . Nigeria and her banking community cannot be an exception to this rule.

It is not for want of want of a better way of playing politics that the Buhari administration orchestrated the policy of diversification of the economy with a heavy anchor on agriculture and manufacturing. The impact of the Central Bank of Nigeria (CBN) engineered revolution in rice production is a good example in measuring the mileage which a well articulated and functional policy on agriculture could achieve for the nation.

We concede to the fact that the agricultural sector is a high risk zone when it comes to lending by the banks but the same can not be said of the manufacturing sector.

We demand that such interventionist agencies as Bank of Industry (BoI) and Industrial Development Bank  (IDB) should be challenged to do more in obtaining grants from government which will be ceded to such selected sectors, agriculture inclusive,  at concessionary interest rates.

“One of the greatest challenges facing the manufacturing sector in the country is lack of long term financing and high interest rate. It is quite disturbing to us that the banks are not lending as much as we need because that is the only way to grow the economy”, president of the Manufacturers association of Nigeria (MAN Dr Frank Jacobs had lamented while reacting to the continuous dwindling in the fortunes of the manufacturer.

We can only but agree with membership of Lagos Chamber of Commerce and Industry (LCCI) when they argued that more funds should be allocated to the private sector especially, agriculture and manufacturing to enhance employment and productivity and by implication the growth of the nation’s economy.

The obvious truth which the government should note is that when lending is declining, it means that economic environment is not conducive. It suggests that the risk of lending to the private sector is increasing.

We commend the authorities of the Central Bank of Nigeria (CBN) on the new initiative at mandating banks to lend to the agriculture and manufacturing sectors at single digit interest rate of 9 per cent with a longer gestation period.

We therefore encourage CBN to continue in its interventions. The  effects of such strategic articulations by the apex bank is evident in the measure of stability thus far achieved in the foreign exchange market considering that both importers and exporters can easily predict the flow of their transactions without minimal gallops in exchange rates.

We therefore challenge the banks to queue into the new desires of the CBN which intention is to increase the flow of credit to the real sector of the economy in order to consolidate and sustain the nation’s economic recovery.

The Monetary Police Committee of the CBN which in its 119th meeting on July 23, 2018 introduced the revised guideline for Accessing Real Sector Support facility through Cash Reserve Requirement (CRR) deserves our commendation for demonstration a clearer understanding of the dynamics of the economy.

For a better society

 

 

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