With Rising Income Inequality, 100 Bank Customers Get 47% of Loan
Nigerian banks have high credit concentration risk, with 47 per cent of total industry loans having been extended to 100 large customers in the country, a report by Moody’s Investor Service has revealed.
Moody’s, a credit rating agency, stated this in its latest report on Nigerian banking sector.
This is just as the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, attributed the development to the level of income inequality in the country.
Moody’s stated that the recent directive by the Central Bank of Nigeria (CBN) that banks should maintain a minimum loan-to-deposit ratio (LDR) of 60 per cent by the end of September 2019, would help support loan growth recovery in Nigeria and support banks’ revenue.
“The directive will encourage banks to diversify their exposure to more granular borrowers, reducing their concentration risks.
“Nigerian banks have high concentration risk, with 47 per cent of total system loans having been extended to 100 large customers,” it added.
Nigerian banks’ loans contracted 6.7 per cent in 2018 and was expected to grow by about five per cent this year.
But speaking with THISDAY, Rewane said the 47 per cent industry loan being extended to 100 customers also showed that the consumer lending segment of the market was still low.
“Yes, there is a concentration risk, but it shows that consumer lending in the country has not been developed. For instance, a loan to Dangote Group of let’s say N100 billion will be more viable than a bank giving N5,000 loan to 100 customers each. It shows the level of income inequality in the country.
“But it is not something to worry about because that is how it is in other countries. That is why you see the CBN coming up with various policies to encourage lending to micro, small and medium scale businesses.
“But there are structural issues in the economy that must be addressed to encourage banks to lend,” he added.
Meanwhile, a former Deputy Governor of the CBN and 2019 presidential aspirant, Prof. Kingsley Moghalu, yesterday decried the state of the economy, noting that a country where one state such as Lagos receives more than 70 per cent of credit does not run “a model of sustainable finance.”
Moghalu, said rather than undertake “structural reforms and create an optimal environment for business productivity,” the government appears to “have a misplaced faith in the ability of its special interventions and those by its central bank to solve all the economy’s problems.”
Moghalu, said this in Lagos, at an Impact Investing Conference organised by financial communications firm, Africonomie.
According to the International Finance Corporation (IFC), impact investing involves investments made into companies, organisations, vehicles and funds with the intent to contribute to measurable positive social, economic and environmental impact alongside financial returns”
Although Nigeria is the largest recipient of impact investments in West Africa, most impact investors in Nigeria are overwhelmingly Development Finance Institutions (DFI), are not based in Nigeria and are not Nigerians.
“I suspect the reason for this absence of big Nigerian players in the impact investing space is that most established Nigerian corporate and fund managers are still operating from a traditional business that drives their business models. If you are of this mindset, you would rather invest in “bricks and mortar” businesses or in low-risk treasury bills than in innovative impact business ventures that may yield even better returns,” Moghalu said.
Also at the conference, the Chief Executive Officer of the Nigerian Stock Exchange (NSE), Oscar Onyema, said more investment opportunities at the NSE was focusing on climate impact and supporting the United Nations’ Sustainable Development Goals.
“There is more money going into those type of funds,” he said.
Onyema, also stressed that Impact Investing shouldn’t be confused with corporate social responsibility, saying it is about embedding sustainability in the way a company is being run.