Over 2018, fiscal and monetary authorities have made efforts (ranging from a shift to the international debt market to the persuasion of DMBs via moral suasion to lend to the real sector players) aimed at boosting private sector credit to spur economic growth. The impact of this was evident in Q3-18 as total credit to the private sector rose by 1.62% q/q to N15.6tn, having declined in the prior three quarters.
Recently, the National Bureau of Statistics (NBS) published its selected banking sector data for Q3-18, which showed that the industry was exposed to high credit risk as asset quality (depicted by the ratio of Non-Performing Loans (NPL) to Total Loans) deteriorated from 12.5% in Q2-18 to 14.2% in Q3-18. Additionally, the ratio of NPL’s to Total Loans (after specific provisions have been deducted) significantly increased from 14.3% in Q2-18 to 16.8% in Q3-18. This compares unfavourably to the maximum prudential threshold of 5.0%.
It can be rightly inferred that the rising NPLs of banks is as a result of their growing exposure to the riskier real sector which has been impacted by election uncertainties and the pressure on the naira, amid a fresh slump in oil prices. Overall, our view remains that despite efforts by authorities to boost private sector credit, a lot still needs to be done to improve the business operating environment in the country, in a bid to create more creditworthy borrowers.
