Economy drags lending power of some FUGAZ banks down

The growth rate of the Nigerian economy might be dragging the lending power of some of Nigeria’s biggest banks down. Available record has shown how the economy’s slow pace has been reflected in the loan growth of Zenith Bank Plc and Guaranty Trust Bank Plc.

According to the financial statements recently released by both tier-1 lenders for full-year 2018, their lending scorecard fell below expectation compared to 2017. And this was all due to the unfavourable economy, which made the banks reluctant to increase their loan access.

A look at the loan records of both companies for 2018

Their financial statements can confirm this – The lending strength of Zenith Bank and GTBank, as contained in their separate financial statements for full-year 2018, can best be described as negative when compared to the record of both lenders in 2017.

This situation is bad for SMEs and established businesses – They each recorded lower loan growths. And this does not augur small and medium enterprises and other private sectors in need of capital to grow or expand their businesses.

Loans decline by 13% and 12.9% – For Zenith Bank, the company’s financial statement showed that the lender’s loan and advances recorded a -13 per cent decline from N2.1 trillion in 2017 to N1.8 trillion in 2018. GTBank, on the other hand, recorded a 12.9 per cent decline; from N1.449 trillion in 2017, to N1.262 trillion in 2018.

Both are FUGAZ banks – Zenith Bank and GTBank are among the top five biggest banks on the NSE namely — First Bank, United Bank for Africa, GTBank, Access Bank, and Zenith Bank — otherwise known as FUGAZ banks. They serve as the performance index of for the rest of Nigeria’s banks.

Why the cautious lending?

Banks seem to have adopted a cautious lending approach due to the dragging economy. Since Nigeria exited recession in 2017, the economy has been growing at a snail’s pace. This discourages heavy investment in Nigerian businesses.

Nairametrics had previously reported that the National Bureau of Statistics (NBS) indicated that Non-performing loans in Nigeria increased by N306 billion or 15 per cent in the third Quarter of 2018 compared to the second quarter. This could have contributed to the cautious lending among these banks.

The Head of Research and Strategy at FSDH Merchant Bank Limited, Ayodele Akinwunmi saidthe economic activities determine the loan power of banks. He said if the economy doesn’t expand, banks shouldn’t be expected to offer loan to businesses.

“Banks lend to businesses with the view that the money would be repaid to enable the banks pay their depositors and reward their shareholders. So, if the economy is not expanding, banks would not be encouraged to lend.” Akinwunmi said.

Impact of cautious lending on Nigerian businesses

The growth of businesses within Nigeria are constrained by insecurity, unstable power and poor infrastructure. With all these factors, meeting with loan obligations become difficult for these businesses. This means the Nigerian business environment is also a factor that indirectly affects banks as well.

And if loan performance is poor and business growth is negative, banks are not encouraged to grow their lending rate, and if banks lending power is low, some businesses will not have access to capital that enables them to overcome the insecurity, unstable power and poor infrastructure.

These factors are basic things handled by the government in a friendly business environment, but businesses in Nigeria are exposed to them, consuming the capital that could have been disbursed on profit-oriented plans.


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