Nairametrics| Commercial Banks face a rather delicate choice to make when it comes to lending in Nigeria. They can decide to lend to multinationals or just focus on large corporates. They can also make the government happy by focusing lending to SME’s or to preferred sector of the economy. They can also decide to lend to the government. Banks can also prefer to target retail consumers or high net-worth individuals. The ultimate, decision on who to lend to depends on the risk appetite of the bank. It appears that one bank has made its choice.
On Wednesday, the Managing Director of Guaranty Trust Bank, GTB informed investors in an analysts call that the bank will reduce “loan growth this year to focus on the increased profit to be had from maintaining domestic bond investment levels.”
Here is a rundown of what GTB wants to do.
- The recent devaluation of the naira increased GTB’s loan book by 15.8 percent rising from N1.3 trillion to N1.59 trillion in 2016.
- It has now been forced to restructure loans owed by oil companies.
- The bank says loans that have been restructured now accounts for 15 percent of its loan book.
- GT Bank will restrict loan growth to 10 percent this year and “maintain its domestic bond portfolio of more than N560 billion” as Reuters reports.
- GTB currently has over N500 billion in FGN Bonds and Treasury Bills, as contained in its latest financial statement (see below). This excludes assets held to maturity.
- The bank said it is targeting a yield of about 14 percent from its holding of domestic loans
- It also projects a profit after tax of N168 billion this year (N132 billion in 2016).
What this means?
- Nigerians Banks are unwilling to take further risk, lending to businesses in a declining economy
- Government Bonds and Treasury Bills have attractive yields that discourages banks from lending to the private sector. The result is a crowding out of the private sector.
- GTB’s target of 14% yield could impact on its return on equity in the short term. Besides, at current inflation rate, this is negative real returns
- Other banks could likely join GTB and may eventually lead to an interest rate crash