By Bukola Idowu, Lagos
Banks in the first half of the year cut down on their lending to the private sector s the country struggled to exit the recession it officially entered last year, a tempo that is likely to continue as banks direct their small scale customers towards intervention funds for credit.
Of the seven banks that have released their results on the Nigerian Stock Exchange so far, only two banks recorded increase in their lending to customers in the first six months of the year while other had a decline in their loan books.
Financial conglomerate, FBN Holding Plc, Union Bank, First City Monument Bank, Diamond Bank, Unity Bank, Wema Bank and Sterling bank have so far released their half year result but only Sterling Bank and Unity Bank recorded increases their loan books. The loan books of the five banks jointly dropped by N159.62 billion during the six month period.
Despite the recession, Sterling Bank had been able to grow both its deposit base and loan book. Executive Director of the bank, Abubakar Sulieman had earlier in the year stated that the bank plans to increase its lending as parts of efforts to sur economic growth in the country by making credit available to customers, particularly small businesses.
The bank’s lending to customers had increased by 11.9 per cent during the first six months of the year, as its loan book grew to N524.02 billion as at June 30, 2017, u from N468.25 billion it had as at December 31, 2016.
Unity Bank’s loan book had also increased by 9.1 per cent during the period under review, rising from N277.21 billion it had given out as at December 31, 2016 to N302.61 billion as at June 30, 2017. This is despite a four per cent decline in its deposit base during the first six month of the year.
FBN Holding’s lending to its customers had declined I the first half of 2016 by 4.08 per cent as it loan book dropped from N2.083 trillion as at December 2016 to N1.998 trillion by the end of June 2017. Likewise, the loan book of Union Bank had dropped by 5.8 per cent from N509.19 billion as at December 2016 to N477.64 billion on June 30, 2017.
While FCMB’s deposits from customers had dropped during the first half of the year by 3.7 per cent, its lending to customer had dropped slightly by 1.6 per cent. Its half year result showed that lending to customers was down from N659.93 billion which it was as at December 2916 to N649.19 billion by June 30, 2017.
Diamond Bank’s loan book had declined slightly by 1.1 percent in the first six months of the year, standing at N984.34 billion as at June 30, 2017 from N995.33 billion which it was as at December 31, 2016, eve as its deposit base also declined slightly.
The loan book of Wema Bank had depreciated by 9.3 per cent between January and June 2017, just as it deposit base was also down by 11.1 per cent. The bank’s la book stood at N205.71 by the end of the half year period as against N227.05 billion it had in its loan book as at December 31, 2016.
Chief Financial Officer of Wema Bank, Tunde Mabawonku, explaining the decline noted that the lending to customers “dropped largely because we got paid out from customers and it was better for us to get paid out and do shorter cycle loans.
“Given the outlook of the economy we decided that let us get paid out, have that cash and have shorter cycle transactions.” To him, the high interest rate in the economy was a major factor in reducing the loans in its books as “most small businesses will not be able to stay above water with a loan interest of 25, 30 per cent in this economy. So instead of risking a default, we steer our SME customers towards single digit interest rate funds from the Bank of Industry and the CBN.”
Generally, he said “from the banks that we have seen, yes there has been some reduction and what happened was that from the fall back f 2016, people are still cautious in lending and the economy is not improving as we would want it to. The expectation is that between July and December this year we will start seeing some improvement in loan book. Our own estimation is that we will grow our loan book in the second half of the year by one to five per cent.
Commenting on the declining loans to the private sector, Managing Director and Chief Executive of Cowry Assets Management limited, Johnson Chukwu noted that banks cut back on giving out credit because the present economy of the country does not favour lending.
According to him, the high rate of delinquency in loan repayments as well as rising non performing loans contributed to the banks’ decision to cut back on lending. Average non performing loans in the banking sector has risen to above 14 per cent from the five percent regulatory requirement.
“The banks, because of the high delinquency of loans are not giving out new loans but are rather recalling matured loans, plus the fact that the rates are high on the government papers.” He noted that the frequency of Federal Government bonds, treasury bills as well as other bills issued by the Central Bank of Nigeria (CBN) is crowding out the private sector.
Chukwu explained that with the “risk free government papers offering higher interests, some around 22 per cent, banks would rather put their funds in the safer papers than lend to the private sector that has more risk of not performing.”