Banks’ lending to private sector hits N267.11trn in 2021, up 319% in two years

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Employment rate shrinks as lenders lay off 10,520 staff in two years

Uba Group

Banks in Nigeria have increased lending to the private sector of the economy in the last two years with total credit growing by 319 percent to N267.11 trillion as at the end of 2021 financial period compared with N63.78 trillion in 2019. Credit to the Oil and Gas sector of the economy remains higher than any other sector at N49.11 trillion in 2021, increasing by 260 percent from N13.63 trillion in 2019. Meanwhile, the banking industry has recorded a drop in employment rate as against the increase in deposits and credit in the review period. BAMIDELE FAMOOFO reports.

In line with the mandate of the Central Bank of Nigeria for Deposit Money Banks to increase lending to the economy in tandem with increasing deposits from customers to the banking industry, more cash has been disbursed to the private sector of the economy to drive economic growth.

The possible effect of the increased lending to the private sector, according to financial experts, is the growth in the nation’s productivity which is reflected in Gross Domestic Product recording seventh consecutive growth to 3.54 percent as at the end of Second quarter in 2022.

But some financial pundits have however expressed concern about whether the cash disbursement to the private sector is directed to the sectors that will create employment as even the lenders (banks) are cutting jobs. Staff strength of the banking sector declined from 103,610 in fourth quarters of 2019 to 93,090 in the same period in 2021. The job cut was despite the successes (growth in profit; deposits and credit) recorded by the banks in the review period. In essence, 10,520 staff, which represents 10.2 percent of the total workforce in the industry, were relieved of their employment in two years.

Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, noted that the as at the end of second quarter in 2022, citing figures provided by the National Bureau of Statistics, noted that the sectors that recorded growth in Q2, 2022, represent only 33 percent of the 46 activities growth in GDP comes with a mixed feeling as unemployment rate remains stubbornly high at 33 percent tracked by the NBS. This is opposed to 54 percent of the sectors tracked in Q1, 2022.

“The sectors that expanded are not the ones that have the greatest employability. Hence, it will have a minimum impact on unemployment, which is stubbornly high at 33%. Some of the sectors that are contracted (rail transport and livestock) are the ones that are labour-intensive. The slowing sectors (agriculture, construction, trade, and manufacturing) are mainly major employers of labour and have huge linkage effects,” Rewane disclosed.

Analysis of disbursements of credit by banks to key sectors in 2021 showed that the Oil and Gas Industrial sector, Manufacturing sector and Good and Services sectors are favourites. Oil and Gas, which led the pack, received 18.4 percent to the total credit allocated to private sector players in the review period with N49.11 trillion while Manufacturing recorded N43.95 trillion, representing 16.5 percent. The General Service sector got N25.36 percent or 9.5 percent.

“Across all sectors, there are issues around the high energy cost, the currency depreciation, the soaring inflation, weak purchasing power, forex scarcity and the structural problems of infrastructure. Even though the non-oil sector contributed 93% of the GDP in the period under review, weak productivity remains an issue”

Lending to the government is another juicy terrain for DMBs to deploy credit as about N24.6 trillion was disbursed to help finance state activities in the period. Education, Mining and Quarrying sectors got the least attention of lenders with N971.78 billion and N265 billion splashed on the sector, respectively.

Meanwhile, Agriculture which is touted to be the alternative to oil and gas received N14.46 trillion; Power and Energy, N5.86 trillion; Construction, N12.74 trillion. Trade and General Commerce is a familiar environment for Nigerian lenders. That sector in 2021 got N17.83 trillion.

A comparison of funding in 2019 and 2021 showed that DMBs advanced funding to both Oil and Gas and Manufacturing in two years as credit increased from N13.63 trillion and N9.74 trillion in 2019 to N49.11 trillion and N43.95 trillion in 2021, respectively. Credit to both sectors grew 260 percent and 351 percent respectively in two years.

The purchasing Managers Index, which is one of the most efficient predictors of cyclical trends, has been oscillating in the last seven months.

An interesting observation by financial analysts is that new orders increased consistently in the last five months (as at August, 2022).

“This raises questions as to whether manufacturers are optimistic about the future or they are hedging against a falling Naira. The fears of dollar scarcity means manufacturers will front load their inventory requirements, creating an illusion of expansion as against the real picture.

This will manifest in a possible decline in purchases and ultimately slow GDP growth in the coming quarter,” Rewane hinted.

Founder /CEO, Centre for the Promotion of Private Enterprise, Muda Yusuf, is of the opinion that growth performance across sectors of the economy needs to be improved upon to promote inclusion in the growth process.

He noted that the Agriculture sector which contributed 24 percent to the GDP but grew by 1.2 percent in the second quarter of this year could be made to perform better if major drawbacks to growth were tackled.

“One of the major drawbacks to the sector was the state of insecurity in most farming locations across the country. An improvement in the security situation would surely boost performance of the sector. This would impact job creation and food security in the country. Better adoption of technology would also add significant value to agriculture. There is a need to improve the efficiency in the entire agricultural value chain – production, processing, transportation, preservation, packaging, marketing,” he said.

“CBN"

The economist who was the former Director General of Lagos Chamber of Commerce and Industry, said capacity utilization is still weak in the manufacturing sector and manufacturers are still grappling with forex and structural issues constraining their productivity.

His words: “Across all sectors, there are issues around the high energy cost, the currency depreciation, the soaring inflation, weak purchasing power, forex scarcity and the structural problems of infrastructure. Even though the non-oil sector contributed 93% of the GDP in the period under review, weak productivity remains an issue. All of these need to be addressed with appropriate government policies.”

Quarter-on-Quarter review (2019-2021)
Quarter-on-quarter, credit disbursement by the banks to the private sector of the economy increased. Most importantly, the three major sectors witnessed increased allocation of funds in the review period.

“The staff strength of deposit money banks in Q1 2021 stood at 94,681, inclusive of executive, senior, junior, and contract staff. In Q2 2021, this decreased to 92,780 and further decreased to 92,699 in Q3 2021. However, Q4 2021 recorded staff strength of 93,090, indicating an increase of 0.42 percent”

The total credit allocated to the private sector in Q1 2021 stood at N62.28 trillion.

The top three credit allocations went into the oil & gas industrial sector, manufacturing sector, and the general service sector with N11.97 trillion (19.22%), N9.82 trillion (15.77%), and N5.55 trillion (8.92%) respectively. Similarly, in Q2 2021, total credit allocation increased by 5.64 percent to N65.79 trillion, with the top three allocations to the oil & gas industrial sector, manufacturing sector, and general service sector recorded at N12.34 trillion (18.75%), N10.83 trillion (16.46%) and N6.24 trillion (9.48%) respectively.

The Q3 2021 credit allocations to the private sector further increased by 2.33 percent from the amount recorded in Q2 2021, showing a total of N67.33 trillion. Of this amount, allocation to the oil & gas industrial sector stood top at N12.32 trillion (18.29%), followed by the manufacturing sector with N11.14 trillion (16.55%) and the general service sector with N6.49 trillion (9.64%).

In addition, N71.71 trillion was reported as a credit to the private sector in Q4 2021, indicating a growth rate of 6.52 percent from Q3 2021. Again, the oil & gas industrial sector recorded the highest allocation with N12.48 trillion (17.40%), followed by the manufacturing sector with N12.16 trillion (16.96%) and the general service sector with N7.08 trillion (9.87%).

The staff strength of deposit money banks in Q1 2021 stood at 94,681, inclusive of executive, senior, junior, and contract staff. In Q2 2021, this decreased to 92,780 and further decreased to 92,699 in Q3 2021. However, Q4 2021 recorded staff strength of 93,090, indicating an increase of 0.42 percent.

2019 performance
In terms of credit to the private sector, the total value of credit allocated by the bank stood at N15.21 trillion as at Q1 2019. Oil & Gas and Manufacturing sectors got credit allocation of N3.49 trillion and N2.23 trillion to record the highest credit allocation as at the period under review. As at Q1, 2019, the total number of bank staff increased by 0.33 percent from 104,669 in Q4 2018 to 105,017.

The total value of credit allocated by the bank to the private sector stood at N15.13 trillion as at Q2 2019. Oil & Gas and Manufacturing sectors got credit allocation of N3.33 trillion and N2.32 trillion to record the highest credit allocation as at the period under review.

As at Q2 2019, the total number of bank staff decreased by 0.62 percent from 105,017 in Q1 2019 to 104,364. In terms of credit to the private sector, the total value of credit allocated by the bank stood at N16.25trn as at Q3 2019. Oil & Gas and Manufacturing sectors got credit allocation of N3.39 trillion and N2.57 trillion to record the highest credit allocation as at the period under review. As at Q3 2019, the total number of bank staff decreased by 2.81 percent QoQ from 104,364 in Q2 2019 to 101,435.

In Q4, 2019, credit allocated by the bank to the private sector stood at N17.19 trillion as at Q4 2019. Oil & Gas and Manufacturing sectors got credit allocation of N3.42 trillion and N2.62 trillion to record the highest credit allocation as at the period under review. As at Q4 2019, the total number of banks’ staff increased by 2.14 percent from 101,435 in Q3 2019 to 103,610.