Nigerian banks who are facing challenges on many fronts are pulling back on exposure to the manufacturing industries due to the coronavirus induced recession.
Total credits of banks to the manufacturing sector amounted to N2.71 trillion as of second quarter of 2021, which is a mere 3.69 percent increase from 2020’s N2.66 trillion, according to data compiled by MoneyCentral.
“You don’t expect them to extend loans to a risky industry coming out of the recession,” said an analyst who doesn’t want his name mentioned.
Nigeria’s economy is still recovering from a 2020 virus induced recession that triggered a scarcity of dollars and devaluation of the local currency, forcing companies to raise prices of goods and services and hampering their abilities to meet debt obligations.
Lenders are more concerned about getting customers to pay interest on money borrowed from them than increasing loan books that is capable of undermining asset quality.
It must be noted that manufacturers felt the pang of the lockdown orders by the government to curb the spread of the virus that caused disruption to supply chain, stoked demand shocks, and damped consumer confidence.
Consequently, firms were forced to lay off workers so as to stay afloat and conserve cash.
A latest report by the National Bureau of Statistics (NBS) suggests that in a fifth of Nigeria’s workforce lost their jobs due to the pandemic.
Of course, banks have always perceived the manufacturing sector as being risky as players are reeling from higher energy costs, increase in commodity prices, devaluation of the currency, cheaper imported products, and low consumer demand.
In the last two years, 2019 to 2020, manufacturers spent about N143.29 billion on alternative power supply, said the Manufacturers Association of Nigeria (MAN).
The combined total costs of manufacturing firms listed on the stock exchange spiked by 37.84 percent in June 2021 to N1.60 trillion as they continue to spend more on input costs to produce each unit of products, resulting in deteriorating profit margin.
Zenith Bank Plc’s loans to the manufacturing sector reduced by 1.10 percent to N633.88 billion in June 2021 from N640.97 billion the previous year.
Access Bank Plc, the largest lender by total asset, saw loans to manufactures increase by a mere 3.58 percent to N408.18 billion in June 2021 from N394.05 billion the previous year.
Guaranty Trust Bank, the largest lender by market capitalization, saw loans to the sector dip by 31.39 percent to N224.50 billion in the period under review.
Fidelity Bank’s loans reduced by 9.67 percent to N218.43 billion in the period under review from N241.83 billion the previous year.
However, others bucked the trend as they had customers who were less risky with robust cash flows.
FirstBank Holdings Plc credit to the manufacturing sector increased by 22.53 percent to N424.60 billion in June 2021 from N346.50 billion the previous.
United Bank for Africa’s loans to manufacturing companies were up 9.13 percent to N348 billion in the period under review from N318.86 billion the previous year.
Stanbic IBTC Holdings Plc’s loans were up 25.34 percent to N213.46 billion in the period under review from N170.30 billion the previous year.
Banks could extend more credit to companies towards the end of the year if the current economic recovery is sustained.
Nigeria exited a recession in the fourth quarter of 2020, and posted a GDP growth of 0.51 percent and 5.01 percent in the first and second quarter of 2021, thanks to the rebound in crude oil price supported by relaxation of lockdown measures and the rollout of vaccines.
The Manufacturing sector’s real GDP turned positive at a rate of 3.4 percent year on year (y/y) in the first quarter (Q1) 2021 following three consecutive quarters of negative growth since the last positive growth in first quarter (Q1) 2020 (0.4 percent y/y) and marking the highest growth recorded since first quarter (Q1) 2018.
It is important to note that customers are gradually honoring their financial obligations, paying up interest on money borrowed from banks as evidenced in reduction in bad loans and improvement in asset quality.
The sector’s NPLs was at 5.70 per cent in June 2021 compared with 6.4 per cent in June 2020, according to recent data from the Central Bank of Nigeria (CBN).
The combined impairment charge on financial assets of the largest lenders was up 1 percent to N94.65 billion as at June 2021, according to data gathered by MoneyCentral.