Banks’ loans to economy hit N8.03 tr in H1’23 as oil & gas, manufacturing sectors grab 55.5% share

Loans from the banking sector to the various sectors of the Nigerian economy rose to N8.03 trillion in H1’23 with the Oil and Gas, and manufacturing sectors accounting for 55.5 per cent of the loans within the period in review.

This was revealed via data from the Sectoral Distribution of Credit by Deposit Money Banks published by the Central Bank of Nigeria (CBN) in the Statistical Bulletin for the second quarter of the year, Q2’23.

The Oil and Gas sector got the largest share of N3.09 trillion representing 38.8 per cent of fresh loans in H1’23, followed by the manufacturing sector which received N1.42 trillion or 17.5 per cent.

The financial sector comprising the Finance, Insurance and Capital Market received the 3rd largest share of banks’ loans receiving N837 billion or 10.4 per cent of the new loans in H1’23.

Trade and General Commerce received N670 billion representing 8.3 per cent while the Information, Communication and Technology sector received N517 billion representing 6.4 per cent of new loans in H1’23.

General Services and Constructions received N398 billion and 348 billion respectively representing 5.0 per cent and 4.3 per cent of new loans in H1’23.

The Power and Energy sector received N287 billion representing 3.6 per cent while the public sector (government) received N125 billion representing 1.6 per cent of new loans in H1’23.

READ ALSO:Bank loans to private sector hit N43tn

However, banks’ lending to the Mining & Quarrying sector declined by 16.6 per cent or N502 million in H1’23, as lending to the sector dropped to N29.59 billion as the end of June from N30.09 billion at the beginning of the year.

Similarly, lending to the Education sector dropped by 11 per cent to N84.19 billion at the end June from N94.4 billion at the beginning of the year.

Commenting on the above development, Head of Equity Research, FBNQuest Securities Limited, Tunde Abidoye said: “A sizable chunk of oil and gas and manufacturing loans are denominated in US dollars. As such, the growth in banks’ exposure to both sectors was largely driven by the 40 per cent devaluation of the naira, following the CBN’s floating of the currency in June 2023.”

On the decline in lending to education, mining & quarrying sectors, Abidoye, said, “Given the elevated interest rate environment, I suspect that banks may have made a strategic decision to tighten their risk management criteria and reduce exposure to so-called “risker sectors” of the economy. Credit demand from those sectors may have also reduced due to the high-interest rates on loans.”

Noting that the growth in banks’ lending may not persist, Abidoye said: “The high-interest rate environment may eventually start to take a toll on banks’ lending to the real sector. Businesses, particularly SMEs, may decide to delay their investment decisions due to the high rate of interest. Delayed investment decisions will result in a slowdown of gross fixed capital formation (capital expenditure) and ultimately lead to lower Gross Domestic Growth, GDP growth.”

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