As the Central Bank of Nigeria (CBN) last week released the guidelines for the disbursement of the single digit interest rate as well as issuance of corporate bonds particularly to critical sectors of the economy such as manufacturing, agriculture and other foreign exchange and employment generating sectors, analysts have expressed skepticism on the availability of the funds to the desired sectors.

According to the director, Financial Markets Department of the CBN, Mr. Emmanuel Ukeje, upon the approval of the loan by the CBN, banks are expected to disburse the loans within five working days.

Analysts who spoke with LEADERSHIP noted that there are gray areas which are yet to be clarified such as the risk of the facilities. The loans which are meant specifically for new and expansion projects in the manufacturing and agricultural sectors are to be given at nine per cent.

This is way below the 27 to 30 per cent interest being charged by banks on loans presently. Analysts noted that considering the present state of the Nigerian economy which is just recovering from a recession, coupled with the lack of necessary infrastructure that would aid growth of businesses in the country, lending is coming at a higher risk for financial institutions.

Banks have been cutting back on their lending to the private sector as data from the National Bureau of Statistics showed that the total loans granted by banks to the private sector declined by N600.60 billion, from N16 trillion in the first quarter of 2017 to N15.34 trillion, in the second quarter of 2018.

In the second, third and fourth quarters of 2017, banks lent N15.7 trillion, N15.83 trillion and N15.74 trillion respectively to the private sector and by Q1 2018, the private sector received N15.6 trillion as loans from banks and N15.34 trillion as loans in Q2 2018.

The data showed that credit allocation to the oil & gas sector increased to N3.45 trillion in Q2 from the N3.42 trillion in Q1 2018, while finance to the manufacturing sector dropped to N2.02 trillion from the N2.07 trillion in Q1.

The money lent to the agriculture sector increased to N523.08 billion from the N501.6 billion recorded in Q1, power and energy dropped to N416.34 billion from N426.5 billion while mining and quarry also declined to N10.18 billion from N10.461 billion in Q1.

Managing director and chief executive of Cowry Assets Management Limited, Johnson Chukwu, in an interview with LEADERSHIP noted that while the banks will be willing to utilize the idle funds with the CBN, they may be constrained by other factors.

“The reason they will not want to lend is that there is no risk sharing. The risk still resides solely with the banks, so should they lend to projects that fail, they will still have to bear 100 per cent write off for such loans.

“It is not a risk sharing initiative and because the risk still resides with the banks, the banks are not likely to be very bullish, they will rather live with a zero income than loss of principal,” he said. Asides this, he said banks are not likely to increase lending this year as the country moves into a political era.

“The key thing about lending is that nobody wants to give out their financial resources at such periods when you are not sure of how the environment is going to remain. It is just a natural defense mechanism that financial institutions adopt,” Chukwu noted.

Likewise, economist, investment research analyst at Cordros Capital Limited, Peter Moses, said as long as the underlying factors which impedes growth of business activities in the country are not addressed, banks would continue to be wary of increasing lending.

“Deposit Money Banks (DMBs) are largely aware that the high cost of doing business in Nigeria, elicited by infrastructural decay, multiple taxation, land ownership structure, enforcing contracts, inter alia, more than anything else, significantly increases the risk of loan default.

“We believe DMB’s risk averseness to credit creation will continue to play out, at least in the short term, considering still-attractive returns on government securities,” he stated adding that “it is rather difficult to accurately assess the potential impact of that without further details and framework cum modus operandi.”