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•Warn of dangers ahead.
In the wake of the current banking reforms, credit to the private sector in 2009 has slowed dramatically, with the banking industry shutting its doors in the last two weeks. Although desirable, the troubled banks’ process of recovery from the verge of insolvency for is curtailing credit to critical areas of the economy. Moreover, it indicates a continuing slide for the Nigerian economy, analysts say.
The level of credit to the private sector had slowed earlier this year compared to 2008. As of March this year, the growth of credit was under 20 percent, compared to over 60 percent for the corresponding period last year. This slow growth in credit has even worsened, now put at less than five percent by a source in the industry due to the current crisis in the banking industry. 
As of last week, the banks that had their chief executives sacked had stopped granting credit. Afribank, Oceanic and Intercontinental were confirmed to have stopped credit facilities; while in some banks, credit facilities were being recalled early. 
Meanwhile, sectors suffering from the credit embargo include importers of refined petroleum products, trading entities, and those engaged in property development. Analysts fear that the continuing deleveraging process in the banking industry will further reduce the level of available credit in the coming months.
The Financial Market Dealers Association (FMDA), Manufacturers Association of Nigeria (MAN), Lagos Chamber of Commerce and Industry (LCCI), analysts and bankers were unanimous in their verdict at the weekend that without credit to critical sectors of the economy, the country may soon begin to witness a comatose economy. This, they insist, will worsen the already bad situation characterised by infrastructure decay and policy inconsistency.
But, Sanusi Lamido Sanusi, Central Bank of Nigeria (CBN) governor, has continued to assure Nigerians and the international community that the current exercise will leave the sector and economy better off. Speaking in London at the weekend, Sanusi, who led some top bankers for a road show to explain recent happenings in Nigeria and seek support for the revitalisation of the ailing banks, noted that the decisive measures taken by the CBN have stabilised the system.
The CBN governor also told his audience that the shake-up has brought sanity and confidence into the system, adding that the action which led to the injection of $2.6 billion was necessitated by bad loans. He, however, promised that efforts would be intensified at recovering them.
Some analysts, on their part, observed that credit growth in the economy grew astronomically over the last five years; while growth of non-performing loans also grew proportionately. But the challenge is that the banks often have serious difficulties in accessing assets used as collaterals for most of the non-performing loans, hence their risk management challenge. 
Bismark Rewane, an analyst, was of the view that in a situation where revenue and investment inflow slow down, credit from the banks should be the natural back-up, but that the present situation of credit crunch can lead to cyclical economic slowdown. He, however, added that the CBN measures are to strengthen banks, noting that it might be a temporary development.
Femi Owopetu, vice president, FMDA, agreed that the current credit crunch has the potential of slowing down the growth of the sector, adding “if credits are not created, then there is no inflow into the market to oil the wheels so what we are going to see is a slow down in the economy until the banks get back to lending.”
Muda Yusuf, director-general, LCCI, posited that CBN’s action has deepened the credit crunch. “Some of our members who are players in the oil and gas sector have had their bank facilities cancelled, others had reductions in their facilities. Generally, the banks are not giving new facilities”.
For him, “the publicity and drama that the action has come with is undermining confidence in the system, while internationally, access to credit has been affected. Such action projects the Nigerian banking sector as weak and untrustworthy.” 
Sunny Nwosu, national coordinator, Independent Shareholders Association of Nigeria (ISAN), called for caution in the reform exercise. “It is common knowledge that without loans, the banks will not succeed and they will not make money. People take these loans to go into business, some businesses fail naturally, while others fail because of bad governance. If you look at this issue very well, you will discover that it’s an issue of induced failure by government.” 
Nwosu said recent moves by the apex bank might affect the economy, and were capable of discouraging people from borrowing money to boost economic activities especially manufacturing. 
However, in the estimation of Chamberlain Peterside, a Nigerian financial analyst based in the United States, the lull in the credit market is expected but temporary due to trepidation by bankers and in other to streamline risk management measures and loan underwriting standards.
He was joined by John Aluya, managing director, Crystal Glass Nigeria Limited and chairman, Apapa branch of MAN, who said “in a normal situation when there is a deviation from the norm of the banks, they have to check their books to put things right.”