Banks open vaults to households, corporates in new credit plan

The nation’s Deposit Money Banks may have begun a new era in credit creation, as they allocated higher credits to different sectors of the economy in the first quarter (Q1) 2018.

The development is coming on the heels of rising international price of crude oil, which has helped to revive some of sector’s non-performing loans in banks, as well as boosted foreign exchange reserves and the value of the local currency.

The commodity has now recorded improved global demand on the back of optimistic growth outlook and sustained by the production cut deal of the Organisation of Petroleum Exporting Countries (OPEC), as well as Saudi Arabia’s vow to cut more oil output.

The Central Bank of Nigeria (CBN), in its Credit Condition Survey Report released few days ago, showed that there was an increase in availability of secured credit to households and corporates in the period under review.

Credit Condition Survey serves as an input into the CBN’s monetary policy document, based on lenders’ responses to the survey, which helps it to assess the latest trends in credit creation in the Nigerian economy and strategies needed to optimise it.

The report affirmed that the availability of secured credit to households was higher in Q1 2018, compared with the previous quarter- Q4 of 2017.

It noted that the relative favourable economic outlook and higher risk tolerance were the major factors for the increase, adding that secured credit is expected to grow higher in Q2 of 2018, from favourable liquidity positions and higher appetite for risk.

Meanwhile, the overall spreads on secured lending rates to households relative to Monetary Policy Rate (MPR) at 14 per cent, narrowed in Q1 of 2018, and expected to further narrow in Q2,

Similarly, the availability of unsecured credit provided to households rose in Q1 2018 and is expected to rise further in Q2 2018.

For the corporate sector, the report showed that the overall availability of credit increased in Q1 2018 and anticipated to increase further in Q2 2018.

The development was also driven by brighter economic outlook, changing sector- specific risks, changing appetite for risk, tight wholesale funding conditions and market share objectives.

It also indicated that the changes in spreads between bank rates and MPR on approved new loan applications for all business sizes widened in Q1 2018, and is expected to widen further for all business sizes except for small businesses in Q2 2018.

Inflation rate also dropped to 13.34 per cent in March 2018, from 14.33 per cent recorded in February, even as FSDH Research analysts expect the inflation rate to drop to single digit by July 2018.

“The major risks to the attainment of a single digit inflation rate in 2018 are increases in the electricity tariff, premium motor spirit (PMS) pump price and the rising social unrest in some parts of the country.

“We believe the CBN may soon deploy measures that will inject additional funds to the financial system that will enable banks to increase credit creation in the economy to stimulate growth,” the analysts said.

The Managing Director of the company, Ayodeji Eboh, in a Weekly Market Report, said: “The impact of the consistent disinflation trend and benign near-term outlook is not lost on monetary policy.

“Regardless, with near term outlook for external account indicators positive (rising oil prices and current account surplus, stable foreign exchange rate and five-year high external reserves) and real interest rate forecast to widen to 1.4 per cent in April, the case for easing monetary policy can be argued from both exchange rate and price stability standpoints,” he said.