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Real sector still down despite N31trn loans from banks

Bamidele Famoofo

 

The productive sector of Africa’s biggest economy has continued to record lacklustre performance even though it has enjoyed increased financing from the banks in recent times.

 

Data obtained from the Central Bank of Nigeria (CBN) puts aggregate credit to the sector at N31.44 trillion as it increased by N1.29 trillion in the first quarter of 2021.

However, Analysts are worried that there is no tangible evidence to show that the economy is getting better due to increased lending from the banks.

The evidence of the poor performance of the economy is seen in Gross Domestic Product (GDP), which measures the level of economic productivity and growth, expanding by 0.54 per cent in the first quarter of 2021- a performance described as tepid by Analysts.

 

Report of the Purchasing Managers’ Index (PMI) survey published by the CBN for the period ended December 2020, is another indicator that the manufacturing sector of the economy is not faring well in spite of increased lending from banks to the productive sector.

 

The Manufacturing PMI in the month of December stood at 49.6 index points, indicating a contraction from the expansionary level recorded in the month of November 2020. Of the 14 surveyed subsectors, four sub-sectors reported expansion (above 50% threshold) in the review month in the following order: Transportation equipment,

Non-metallic mineral products, Paper products and Food, beverage & tobacco products.

Textile, apparel, leather & footwear subsector remained stationary while the remaining nine subsectors reported contractions in the following order: Primary metal, Petroleum & coal products; Cement, Electrical equipment, Fabricated metal products, Printing & related support activities, Plastics & rubber products; Chemical & pharmaceutical products and Furniture & related products. Chief Executive Officer of Sofunix Investment and Communications, Sola Oni, attributed the mismatch to the poor operating environment for businesses in the country.

 

He noted that no business would thrive in the midst of poor infrastructure and insecurity coupled with the menace of the Covid-19 pandemic. Oni said: “The extent to which the private sector investment can grow depends on the nature and character of the operating environment.

 

COVID-19 pandemic has impacted negatively in most sectors of the economy.

 

At the moment, Private Sector operators are contending with devaluation of the Naira, forex scarcity, energy problems, weak infrastructure and negative return on investment among others.”

 

He explained that manufacturers are operating below installed capacity with lack of access to raw materials and their products are not competitive because of the influx of adulterated products and imported ones and weak purchasing power of consumers among others.

 

“Under this inclement operating environment, it becomes difficult for them to operate optimally with attendant effects on their bottom-line.”

Investment Research Analyst at United Capital Limited, Ayorinde Akinloye, would not agree less with Oni as he cited poor business operating environment and declining purchasing power  as two major factors hindering economic growth as it relates to increased financing from banks.

He said: “Banks may be lending to the real sector but the business environment is not conducive for the companies that are getting the loan to business. “When l talk about the business environment I mean the available infrastructure point of view, policy as it affects forex etc. “Consumer spending power is weak.

The companies are producing without getting enough demand for their products. Prices are high and purchasing power is dropping.”

 

Akinloye however noted that banks will definitely do everything possible to make sure that they comply with the CBN’s directive to lend at least 65 per cent of their deposits to the economy.

“That is why they will continue to lend to the private sector because the cost of not complying is not going to be positive for them as they will be debited from the cash reserves and that will impact on their balance sheet,” he said.

Financial Analysts and Economist, Marcel Okeke, also lamented about the poor business climate of the country citing insecurity as a major problem.

He called on the CBN to be more interested in measuring the performance of the banks’ lending rather than being interested only in them meeting the LDR requirement.

 

“The loans that are being given out, who gets them, and for what purposes are they given out? “This is an area the CBN must investigate properly to know what is happening in the banking industry. “They must be interested in accessing the outcome of credits to businesses that supposedly are getting the loans.”

 

Meanwhile the CBN has maintained its position that the reason for growth in banks’ loan book was as a result of the implementation of the Loan to Deposit Ratio (LDR) policy of the Central Bank of Nigeria (CBN), instituted to increase lending to the real sector in order to grow the economy.

 

The CBN had on its part made funds available and accessible through its various intervention programmes to the banks to  lend to their customers.

 

CBN, it could be recalled, had in October 2019, raised the Loan to Deposit Ratio of banks to 65 per cent, after the September 30, 2019 deadline given to the banks to meet its 60 per cent directive.

 

The Bank however extended the deadline of 65 per cent LDR to March 31, 2020.

The Deputy Governor in charge of Financial System Stability Directorate, Mrs Aishah Ahmad, had in her personal statement in January 2021 Monetary Policy Committee (MPC) meeting that the LDR policy retained its efficacy, stimulating substantial increases in private sector loans, thus lowering market lending and has progressively diversified industry lending portfolio.

 

She claimed that the CBN has continued to move to quicken Nigeria’s economic recovery from the recession witnessed in the third quarter of 2020, due to the pandemic- induced lockdown by encouraging banks to offer more credit to the real sector of the economy.

 

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