High NPL forces banks to scale down credit to the private sector in 2017

by | February 12, 2018 2:51 am

High non-performing loans in 2016 may have forced banks in the country to scale down credit facilities to the private sector in 2017 as banks became more cautious of high risk sectors, BusinessDay findings have shown. The total credit to the private sector in 2017 witnessed a marginal decrease of 2.34 percent to N15.74 trillion compared with N16.12 trillion in 2016.
In 2016 when the economy was reeling in recession, credit to the economy rose by 23.2 percent over the amount granted to firms and individuals in the private sector in 2015. The decrease in 2017 beats the imagination of analysts and stakeholders particularly at a time the worst was said to be over for the Nigerian economy.
“In 2016, banks lent aggressively to players in different sectors of the economy and at the end of the day the non-performing loans rose sharply. So in 2017, they became cautious of those high risk sub sectors which manifested in the amounts of loans granted to the private sector last year”, Kayode Tinuoye, head, research department, United Capital, said.
The most affected of these sectors are the transportation & storage, general commerce, education and information and communication. Credit to players in the transportation and storage sub sector declined by 26 percent to N332.08 billion in 2017, down from N450.75 billion in 2016. From N1.31 trillion in 2016, credit to the general commerce sub sector fell by 21 percent to N1.04 trillion in 2017.
“The high interest regime was also a major factor in 2017”, Tinuoye added.
The banking industry average non-performing loans (NPLs) rose to 12.8 percent in 2016 as against 4.9 percent in 2015. The regulatory benchmark for NPL is 5 percent. As at half year 2017, the NPL of GTB stood at 3.70 percent compared with 4.39 percent in similar period in 2016 while that of Zenith Bank stood at 4.3 percent in contrast to 2.3 percent as at June 2016.
Other sub sectors that recoded a decline in credit facilities last year are education, information and communication technology. From N87.22 billion in 2016, loans to education sector declined to N72.53 billion in 2017, representing 17 percent decrease just as the credit facilities to the information and communication sub sector fell to N774.37 billion from N845.94 billion in 2016.
Tolu Obe, chief executive officer of First Attempt Consulting Limited, a firm in the education sub sector, said banks declined many of the loans requests made by players in the education sector in 2017.
“ To be candid, we got more facilities in 2016 compared with 2017 because banks raised the value and categories of collaterals we should provide to get loans last year”, Obe said.
The oil and gas, real estate, manufacturing were not left out as credit facilities to these sectors fell by 8.4 percent, 4.8 percent and 2 percent respectively.
The sector that witnessed the most funding was the finance, insurance and capital market. Others are mining and quarrying, power and energy, construction and government sub sectors.
Credit facilities to the players in finance, insurance and capital market rose by 20.1 percent during the period. Mining and quarrying players got credit facilities 18.7 percent more than what they received in the last quarter of 2016. Also, credit facilities to the construction sub sector were up by 4.1 percent. The governments at all levels received saw their facilities rise by 2.2 percent. The agric sub sector did not get much attention as facilities in the last quarter of 2017 over the last quarter of 2016 rose slightly by 0.4 percent.