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Banks divert loans to public sector

by News Echo
2 minutes read

In apparent demonstration of low confidence in the economy, banks are focusing their lending to the public sector to the detriment of the private sector. Despite the increased tempo of economic activities following the lifting of the Coronavirus induced economic lockdowns, banks lending to the private sector crashed by N425 billion in September 2020.

According to the Central Bank of Nigeria, CBN, monthly Depository Corporation survey report, credit to the private sector dropped by 1.41 percent to N29.71 trillion in September from N30.13 trillion in August. On the contrary, credit to the government rose by 13.51 percent to N9.68 trillion in September from N8.56 trillion in August. In overall, credit to the economy rose by 1.81 percent to N39.39 trillion in September from N38.69 trillion in August.

The N425 billion decline in credit to the private sector in September, follows a similar trend in lending to consumers, which fell by 11 percent or N100 billion for two consecutive months, in July and August by 11 percent to N1.4 trillion.

This trend which reflects increasing apathy of banks to lending in a bid to curtail bad loans, follows increased loan default by households and businesses According to the CBN Credit Condition Survey report for the third quarter (Q3’2020), banks recorded more loan defaults during the quarter.

The report stated: “The performance of total unsecured loan to households, measured by default rates, worsened in Q3 2020 and it is expected to deteriorate further in Q4 2020. Lenders experienced higher default rates on credit card and overdrafts/personal lending to households in Q3 2020 but expect lower default rates in Q4 2020.

“Losses given default on total unsecured loans to households and overdraft/personal loans to households both declined in Q3 2020. Similarly, default on total unsecured loans to households was expected to worsen further while default on overdraft/personal loans to households would improve in Q4 2020.

“Corporate loan performance as measured by the default rates worsened for small businesses and medium PNFCs but improved for large Public Non-Financial Corporations (PNFCs) and small businesses and Other Financial Corporations (OFCS) in Q3 2020. However, lenders expect lower default rates on lending to all sized businesses except small businesses in Q4 2020.”

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