Banks Must Carry On Lending

Must Read

Africa’s biggest grocery retailer, Shoprite exits Nigeria

Shoprite is exiting the continent's most populated country, Nigeria, after 15 years of operation. The retail giant initiated a...

List of Guaranty Trust Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number that usually identifies both the bank and the branch where an account is...

List of Access Bank Sort Codes & Branches (with addresses) in Nigeria

The sort code is a number which usually identifies both the bank and the branch where an account is...

Normally when a recession starts banks cut back on credit to overextended companies. Companies react by cutting costs and jobs in an attempt to shore up their own finances. Households run down savings and deposits as they struggle to survive. Governments run deficits to smooth the adjustment.

But in the COVID 19 recession the chain of events is very different and economists are struggling to work out what it all means. The good news is that banks have not cut credit – they have extended it.

In the euro area, bank lending to non-financial corporations grew by €75bn in April after €122bn in March, according to a recent report by Jeffries called ‘Why Banks Matter So Much Right Now’.

“How many of these loans end up as non-performing remains a moot point, but the important thing is that there is a flow of credit supporting economies right now,” says the report.

- Advertisement -

“Ultimately some of this may end up as a contingent liability on governments’ balance sheets, but this is helping keep businesses afloat as economies gradually re-open.”

Never before in history have governments pushed their economies into recession deliberately and the result will be budget deficits of between 10% to 15% over this year and next. Bank lending is vital as economies adjust.

There is one positive sign on the corporate front as businesses struggle to stay afloat – the freezing of dividends. Usually, companies are reluctant to do this as it sends out a message of panic. But in the COVID 19 recession, a dividend cut is being seen by the market as a sign a company is taking swift action and has a viable future.

Read Also:  INTRODUCING THE 2018 BELVEDERE VODKA LIMITED EDITION BOTTLE DESIGNED BY ACCLAIMED ARTIST LAOLU SENBANJO

Finally, there is the household sector. Usually, in a recession there would be a rise in loan defaults and a running down of savings. So far in this recession lending for house purchases has been maintained while consumer credit has slowed. In the UK, banks have given mortgage holidays to 1.9 million homeowners during the lockdown. Household bank deposits in the euro area rose by €100.9bn in April as more affluent households saved rather than spent.

- Advertisement -

It’s still early days of course. If GDP contractions of 20% to 25% last for a considerable period, tougher decisions will need to be made. Inequality will rise anyway as poorer households suffer a decline in earnings and have no savings to fall back on. Government programmes are the only answer to that problem.

In general, the banks’ role has been a positive one. They have assisted borrowers rather than walking out on them. They need to focus all their intelligence and expertise on trying to keep it that way for the next couple of years.

Read Also:  The Global Economy in 2018 - Can We Hope for Another Cheery Year?

Brian Caplen is the editor of The Banker. The article appeared first in The Banker.

- Advertisement -
Banks Must Carry On Lending - Brand SpurBanks Must Carry On Lending - Brand Spur

Subscribe to BrandSpur Ng

Subscribe for latest updates. Signup to best of brands and business news, informed analysis and opinions among others that can propel you, your business or brand to greater heights.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Banks Must Carry On Lending - Brand SpurBanks Must Carry On Lending - Brand Spur

Latest News

VIDEO: Coca-Cola’s Impact In Nigeria Might Be More Far-Reaching Than You Know

For a company as long-standing as Coca-Cola, it is quite remarkable that it has managed to stay well within...

A Decade in Peerless Excellence – GTBank is Nigeria’s Best Bank for a record extending 10 Times

Guaranty Trust Bank Plc (GTBank) has long been regarded by industry watchers as one of the best run financial institutions in Africa, a reputation...

Diageo profits plunge 47% as pandemic hits global demand

Diageo today admitted profits for the past year plunged 47% hit by the closure of the on-trade activities and the cancellation of sports events...

Diageo Plc announces change to its Board of Directors

Diageo announces that Ho KwonPing will retire as a Non-Executive Director, effective 28 September 2020. Ho KwonPing has served on Diageo plc’s Board of Directors...

H1 2020: Sterling Bank reports a 4.4% decline in profit after tax to N5.4bn

Sterling Bank Plc, a full service national commercial bank releases its unaudited results for the half-year ended June 30, 2020. The Bank’s results released on...
- Advertisement -
BrandsPur Weekly Cartoons
- Advertisement -Banks Must Carry On Lending - Brand SpurBanks Must Carry On Lending - Brand Spur