Financial Services
Banks’ loans to customers rise to N18.9 trillion in Q1 2020
Banks’ loans increased by more than N1 trillion during the first three months of 2020.
Nigerian banks’ loans to customers jumped to N18.9 trillion in Q1 2020, up from N17.4 trillion in FY 2019. Checks by Nairametrics Research revealed a 5.74% increase during the first quarter of the year. In other words, banks’ loans increased by more than N1 trillion during the first three months of the year.
The Details: Zenith Bank Plc recorded the biggest loans to customers in Q1 2020, having disbursed as much as N275.2 billion worth of loans during the period. In total, the tier-1 bank’s loans to customers stood at N2.6 trillion as of March 31st, 2020.
First Bank came in second in terms of biggest loan disbursement in Q1 2020. There was a 10.74% increase (or N198.9 billion addition in loans), which saw the tier-1 bank’s total loans to customers jumping to more than N2 trillion, up from N1.8 trillion as of December 2019.
United Bank for Africa Plc came in third with N195.2 billion, followed by Guaranty Trust Bank Plc with N121.3 billion. Figures for the rest of the banks can be seen in the table below.
Courtesy of Nairametrics Research
Why this Matters: Recall that the Central Bank of Nigeria (CBN) had in July 2019 increased banks’ Loan to Deposit Ratio (LDR) to 60%, up from 58.5%. Three months afterwards, the LDR was again increased to 65%, even as speculations were rife that it would further be increased to 70%. The apex bank later issued a circular announcing that LDR would be retained at 65% which is the current level.
The main reason the CBN increased the LDR in the first place was to facilitate the provision of credit facilities to the real sector of the economy. The CBN incentives assigned a weight of 150% in respect of lending to SMEs, retail, mortgage, and consumer lending. Lenders are required to fully comply or risk attracting a levy of additional Cash Reserves Requirements of 50% of the lending shortfall of the target LDR.
Nairametrics understands that the apex bank’s LDR policy was partly responsible for the noticeable increase in banks’ loans to customers in Q1 2020. However, it remains to be seen whether the loan figures will grow during the second quarter of the year, considering the challenges that have faced the Nigerian economy during the period.
Financial Services
Zenith Bank GMD explains why its difficult for SMEs to get loans from banks
Onyeagwu has highlighted the regulatory challenges that SMEs are faced in trying to secure bank lending.
The Group Managing Director of Zenith Bank, Mr. Ebenezer Onyeagwu has discussed the impressive positive returns recorded this year by the bank. He also shared some insights on the relationship between commercial banks in Nigeria and Small/Medium Enterprise business owners.
Onyeagwu gave all these insights while speaking in an interview with Arise TV.
On why Nigerian banks charge high-interest loans, making it difficult for small business owners to get single-digit loans for their business, the Zenith Bank GMD explained that the operational costs and regulatory costs involved in running a bank usually sets the pace for every other thing. He listed examples of operational costs involved in running a single bank branch and how all that adds to the bottom line at the end of the day.
He also highlighted regulatory costs which are not particularly known by people outside the banking sector as one of the costs of doing business banks face. These two factors mainly contribute to the high-interest rates banks charge on loans.
“Our cost profile depicts the operating environment. Within the year we saw an upward review in fuel price, which accounted for the increase in our fuel cost. Again, when you are looking at cost of doing business, you also need to look in total, how businesses are being conducted. If I set up a branch today, I would need to provide my infrastructure, I need to provide power, water and in some cases, we even construct the road to provide access to the branch location. So, as a result of the poor state of infrastructure, you see that businesses would now have to contend with providing these resources to get their operations running. So, if we have more available and cheaper utility services and infrastructure to support businesses, of course, the cost would go down.
Then, looking at cost of doing business in banking, it goes beyond those operational costs. We also have things like regulatory cost. A bank like Zenith, given our size, the burden of regulatory cost on us is heavy. By regulatory cost here, I am referring to the Nigeria Deposit Insurance Corporation premium and the Asset Management Corporation of Nigeria fee. So, because of our size, if you look at the numbers, you will see that these regulatory costs account for a whopping 28 percent of our overhead. So, all of them come together to add to the cost of doing business for us as a banking institution in the country,” Onyeagwu said.
On why it is difficult to get single-digit loans from Nigerian banks, Onyeagwu highlighted 3 key reasons why single-digit loans are very difficult to obtain in Nigeria. He listed the following:
- Fiscal deficit
- Government Borrowing
- Money supply and demand
The Zenith GMD stated that it is nearly impossible to issue an interest rate by fiat. He stated that the interest rate will always be determined by market forces.
He said, “First of all, if you are looking at the interest rate, you have to look at it in terms of the theoretical framework and issues around money supply, demand for money, issues around government borrowing, and the fiscal deficits. So, when you put all that together, you will see that you cannot have a situation where you decree interest rate by fiat. Interest rates would always be set by the dynamics and realities in the market. In this case, if you are looking at the interest rate in Nigeria, you have to index it to the risk-free rate. The one-year risk-free rate in Nigeria is like 10 percent. So, it will be difficult to have a single-digit rate in Nigeria.”
Solutions
Onyeagwu highlighted the various ways the Central Bank of Nigeria has intervened in a bid it provides single-digit loans to entrepreneurs in certain sectors. Sectors like cinema, movie, ICT, and fashion designing have been enjoying single-digit loans courtesy of various CBN initiatives.
He said, “We have intervention funds such as the Creative Industry Financing Initiative, where banks in the country provide long-term single-digit funding for entrepreneurs who are in cinema, movie, ICT, and fashion designing. We also have what is called the Agri-Business/Small and Medium Enterprise Investment Scheme. It is also a pool of funds available for businesses in that space. You can as well access these loans. Apart from these, the CBN also has different intervention schemes such as the Anchor Borrowers Scheme, the Commercial Agricultural Credit Scheme, and others, and all these loans are single-digit and they provide long-term financing. The big problem we have is that when you see an SME approaching you for the loan, the SME may not have a track record; he walks up to you and tells you that he needs a single-digit loan and needs N20 million.
“But I can’t give you N20 million without looking where you are coming from. So, we cannot decree the interest rate by fiat. But the regulators have done good work by providing funding schemes and whoever is eligible would get such single-digit long-term loans once they meet the criteria. So, the funding is there, but the SMEs when they approach the banks don’t often meet the eligibility criteria.”
Financial Services
Jim Ovia is set to earn N9.58 billion in dividend for FY 2020
The highly revered banker is the single majority shareholder of Zenith Bank as he directly owns 3,546,199,395 units of the fast-rising bank stock.
Anonymous
June 17, 2020 at 11:08 am
Which way processing the link