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The impact of rising inflation and currency volatility that strengthened corporate borrowing are responsible for an expansion in loan growth as banks continue to support the economy.
Data gathered by MoneyCentral shows the most liquid and capitalised lenders saw their combined loans and advances spike by 29.84 percent to N36.08 trillion as at June 2023, from N27.79 trillion as at June 2022.
A trend analysis of the numbers shows cumulative loans rose 6.19 percent in 2021; 2020, (27.24 percent); 2019, (11.05 percent).
However, there were reductions in loan growth by 9.95 and 1.92 percent in 2018 and 2017, which coincided with a period when the country was gradually recovering from an economic downturn and a recession of 2016 which was brought on by a precipitous crude oil price as banks were cautious about lending.
Notable, the unexpected devaluation of the currency ballooned the foreign exchange loans in the books of lenders as higher interest rates brought on by the central bank who seeks to curb stubborn inflation helped bolster net interest income.
The capital requirement for firms have gone up as they need to borrow more to maintain their operation in the face of rising input costs, inflationary pressures, and weak currency, according to Ayodele Akinwunmi, relationship manager at FSDH Merchant Bank Limited.
“They need higher funding to meet the same level of output. For instance, Flourmills bought wheat at an exchange rate of N450/$1 last year now needs more bank support since the exchange is now between N750 to N800/$,” said Akinwunmi.
The Naira has lost 40 percent of its value since the re-introduction of the forces of demand and supply determining pricing of the USD/NGN and the reintroduction of the order based two way quote system.
Nigeria’s annual inflation rate climbed to 25.8 percent in August 2023, from 24.08 percent in July and marking the highest rate since September 2005, reflecting the impact of the removal of fuel subsidies, the devaluation of the official exchange rate and security issues in food-producing regions.
Inflation will slow Nigeria’s economic growth in 2023, the International Monetary Fund has predicted.
It also downgraded the country’s economic growth prospect by 0.3 percentage points to 2.9 per cent for 2023 following weaker oil and gas production.
Banks’ balance sheets have remained robust with well diversified asset mix, making them impervious to macroeconomic shocks.
The most liquid and capitalised lenders collectively grew total assets by 34.15 percent to N92.38 trillion in June 2023 from N68.46 trillion the previous year, according to data gathered by MoneyCentral.
United Bank for Africa’s balance sheet size was driven by real growth (58 percent) and impact of exchange rate harmonization (42.3 percent).
“Well-diversified balance sheet with asset composition predominantly in government securities and risk assets to support the bank’s liquidity and profitability,” said the Bank.
Guaranty Trust Holding Company (GTCO) said IFRS 9 Stage 3 loans grew marginally, primarily driven by exchange rate impact as the Group continued to deleverage in Ghana and Kenya and carried out derecognition of fully provided facilities in the Nigerian book.
There are also concerns about a slowdown in corporate borrowings due to rising interest rates as some firms which booked huge foreign exchange revaluation losses posted loss after tax, and a deteriorating operating income cast a pall on their ability to pay interest on money borrowed.