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Big Banks Grow Loan Books as Economy Rebounds

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As the economy fully recovers from the coronavirus pandemic, the nation’s largest banks have seen a steady growth in customer loans.

The latest earnings report shows all the largest lenders grew their risk-weighted assets as non interest sources of income also bolstered revenue.

The combined loans and advances of banks rose by 16.68 percent to N25.56 trillion in September 2022, according to data gathered by MoneyCentral.

However, that is lower than the 23.70 percent growth in 2021, but higher than 2020’s uptick of 14.57 percent; interestingly, cumulative loans grew by 35.15 percent in 2019, but dipped by 5.70 percent in 2018.

Banks rely on loan growth to generate interest income and they can achieve financial intermediation when there are improvements in economic activities.

Two years ago, the coronavirus pandemic that forced the government to impose a lockdown policy paralyzed business activities and the country slipped into its second recession in five years in 2020.

However, the rollout of vaccines and the relaxation of the lockdown policy helped the economy rebound to growth in the last quarter of 2020.

Nigeria’s gross domestic product (GDP) grew by 3.54% year-on-year in real terms in the second quarter of 2022, an improvement compared to the 3.11% growth recorded in the previous quarter, according to the National Bureau of Statistics (NBS).

Analysts say a declining yield over the past two years and the hike in the minimum loans to deposit ratio by the central bank loans to deposit ratio forced lenders to extend credit facilities to the real sector of the economy and magnify risk-weighted assets.

Data from the Central Bank of Nigeria (CBN) contained in the Money and Credit Statistics show an increase in total credit to the Nigerian economy in the third quarter of 2022 (Q3 2022). Credit from banks to the economy increased year-on-year (YoY) in Q3 2022 by 34 per cent to N63.3, from N46.9 trillion in the corresponding period of 2021.

The total credit comprises government borrowing of N22.8 trillion, while private sector borrowing stood at N40.5 trillion. Government borrowings grew faster than private sector borrowing, as YoY, government borrowings rose 75 percent, while private sector borrowings increased by 19 percent YoY.

The rise in credit to the government is in line with the rise in government debt, which raises a concern about the crowding-out effect of government borrowing in the domestic financial market on the availability of funds to private firms for productive investments, according to a statement from the central bank.

“Consequently, the government should boost revenue collection and pursue innovative financing options to effectively fund its rising expenditure to minimise the rate of borrowing from the domestic financial market,” said the regulator.

But there are concerns that the gradual rise in interest rate on the back of the regulator’s aggressive monetary stance could make banks slow down on lending since the era of easy money from fixed income is coming back.

Zenith Bank’s total loans increased by 36.68 percent to N4.91 trillion in the period under review from N3.59 billion the previous year. Access Bank’s total loans increased by 10.25 percent to N4.95 trillion in September 2022 from N4.49 trillion the previous year.

First Bank Holdings Plc total loans rose by 17.68 percent to N4.77 trillion as at September 2022.

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