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Banks are Not Lending to Private Sector – Afrinvest
- By Business World
- Published August 16th, 2010
- MoneyWorld
- Unrated
A report conducted by Afrinvest has indicated that banks are not yet lending to the real sector despite the on-going efforts by the Central Bank of Nigeria (CBN) to stimulate access to credit. The reluctance to lend is hinged on the ongoing reforms in the banking system which has forced banks to focus on loan recovery.
Afrinvest in its 2010 Nigerian Banking Sector report titled, “Reforming towards Lending to the Real Sector” disclosed that banks in the country are not lending to the private sector of the economy despite liquidity in the system.
According to the report which was unveiled in Lagos, banks now focus mainly on debt recovery and are cautious in lending, a strategy designed to avoid losses. The report attributes the cautious approach to the outcome of the joint special audit carried out in the banking sector by the CBN and Nigeria Deposit Insurance Corporation (NDIC) last year which indicted a number of banks on non performing loans.
“Credit to the private sector practically thinned out as banks have directed focus on debt recovery. Meanwhile, the banks are redefining new approaches to asset creation given the now obvious requirements to exercise extra caution and due diligence in order to avoid future losses.” it stated.
The report stated that data from CBN showed that year –on-year credit growth slowed to 30 per cent in August 2009 compared to 59 per cent in January 2009 and the highs of over 100 per cent, adding that credit to the private sector contracted by 11.8 per cent in first quarter of 2010 as against provisional benchmark of 31.5 per cent growth forecast of 2010.
Mr. Ike Chioke Managing Director, Afrinvest, said the research reviewed the events in the financial sector over the past 18 months, particularly the banking reforms initiated by the CBN and seek to provide greater clarity on the mechanism and economic implication of the various quantitative easing measures adopted by government, addin that it also provided a summary of the key changes to the regulatory environment following the near collapse of the banking sector.
Chioke observed that in the report, Afrinvest arrived at the conclusion that the ultimate objective of the various reform initiatives by the CBN was primarily to achieve a single-digit interest rate environment in which the real sector can access sustainable long term finance for capital expansion, new product
development, investment in human capital and improvement in operating efficiency, stating that given the current operating model of Nigeria’s banks and their high cost structure the emerging new world of banking will be fundamentally different from today’s already changed environment.
He added that the prime lending rate went as far 23.3 per cent in February this year, stressing that the tightening credit market has confounded analysis as it was happening in an environment of excess liquidity in the system with the CBN having pumped in N620 billion to shore up the balance sheets of rescued banks, pension fund managers collecting N15 billion monthly from contributors while Federation Account Allocation Committee (FAAC) and excess crude remittances combined to cause banks to place estimated N7-00 billion with the CBN rather than lend.
Mrs Shola Ayodele ,Group Managing Director of Spring Bank, noted that banks are lending to the private sector, stressing that the banks have not been able to achieve a single digit interest rates owing to cost of funds.She was optimistic that it could get better in the nearest future.
Mr. Godwin Obaseki the vice chairman of the company, noted that the report which is the fourth banking to be published since 2006 centred on consolidation, risk management and disclosure, adding that apart from banking report, the organization also do research reports on the bond market, insurance and telecommunication sectors.
Afrinvest in its 2010 Nigerian Banking Sector report titled, “Reforming towards Lending to the Real Sector” disclosed that banks in the country are not lending to the private sector of the economy despite liquidity in the system.
According to the report which was unveiled in Lagos, banks now focus mainly on debt recovery and are cautious in lending, a strategy designed to avoid losses. The report attributes the cautious approach to the outcome of the joint special audit carried out in the banking sector by the CBN and Nigeria Deposit Insurance Corporation (NDIC) last year which indicted a number of banks on non performing loans.
“Credit to the private sector practically thinned out as banks have directed focus on debt recovery. Meanwhile, the banks are redefining new approaches to asset creation given the now obvious requirements to exercise extra caution and due diligence in order to avoid future losses.” it stated.
The report stated that data from CBN showed that year –on-year credit growth slowed to 30 per cent in August 2009 compared to 59 per cent in January 2009 and the highs of over 100 per cent, adding that credit to the private sector contracted by 11.8 per cent in first quarter of 2010 as against provisional benchmark of 31.5 per cent growth forecast of 2010.
Mr. Ike Chioke Managing Director, Afrinvest, said the research reviewed the events in the financial sector over the past 18 months, particularly the banking reforms initiated by the CBN and seek to provide greater clarity on the mechanism and economic implication of the various quantitative easing measures adopted by government, addin that it also provided a summary of the key changes to the regulatory environment following the near collapse of the banking sector.
Chioke observed that in the report, Afrinvest arrived at the conclusion that the ultimate objective of the various reform initiatives by the CBN was primarily to achieve a single-digit interest rate environment in which the real sector can access sustainable long term finance for capital expansion, new product
development, investment in human capital and improvement in operating efficiency, stating that given the current operating model of Nigeria’s banks and their high cost structure the emerging new world of banking will be fundamentally different from today’s already changed environment.
He added that the prime lending rate went as far 23.3 per cent in February this year, stressing that the tightening credit market has confounded analysis as it was happening in an environment of excess liquidity in the system with the CBN having pumped in N620 billion to shore up the balance sheets of rescued banks, pension fund managers collecting N15 billion monthly from contributors while Federation Account Allocation Committee (FAAC) and excess crude remittances combined to cause banks to place estimated N7-00 billion with the CBN rather than lend.
Mrs Shola Ayodele ,Group Managing Director of Spring Bank, noted that banks are lending to the private sector, stressing that the banks have not been able to achieve a single digit interest rates owing to cost of funds.She was optimistic that it could get better in the nearest future.
Mr. Godwin Obaseki the vice chairman of the company, noted that the report which is the fourth banking to be published since 2006 centred on consolidation, risk management and disclosure, adding that apart from banking report, the organization also do research reports on the bond market, insurance and telecommunication sectors.
