DEVELOPMENTS IN BANKING REAL SECTOR (2005-2009)

Table 1 below shows credit by the banking sector to selected sub-sectors in the real sector. For the period 2006–2009, total credit to the economy from the banking sector rose from N2,535.4 billion in 2006 to N8,769 billion in 2009 and averaged N5,830.7 billion during the period. Credit to real sector activities, agriculture, solid minerals, manufacturing, real estate, public utilities and communication on the average, accounted for 41.8 per cent of total credit, while general commerce, services and government received the balance of 58.2 per cent. The share of manufacturing in total credit to the economy fell sharply, from 16.9 per cent in 2006 to 10.6 per cent in 2007, before rising to 12.6 per

cent in both 2008 and 2009 (table 2). Manufacturing average share was 13.2 per cent and had the highest credit allocation. It was followed by solid minerals and communication, the shares of which averaged 11.1 and 7.7 per cent, respectively. The average for agriculture was abysmal at 2.1 per cent.

Further analysis shows that funding from the banks accounted for only 14.4 per cent of total funds in 2006, 13.4 per cent in 2007, 18.7 per cent in 2008 and 49.7 per cent in 2009. The result of the survey also gave indications of how real sector enterprises faired in terms of attracting bank credits. The survey showed that banks satisfied an average of only 15.8 per cent of the number of loan requests made by real sector firms in 2006 and 2007, and 26.3 in 2008 and 2009.

Furthermore, the study tried to establish the credit gap and explain why banks are reluctant to lend to the real sector in Nigeria and found that, in credit packaging, bank treasurers evaluate the safety of their funds, the liquidity of the balance sheets and the profitability of proposed ventures. Safety has more weight the smaller the asset base, while the need to ensure liquidity depends on the customer base and the frequency of transactions. Profitability compensates shareholders and guarantees going concern for the bank. Since the liberalization of the credit market in Nigeria under the Structural Adjustment Programme, the status of Preferred Sector was stripped off the real sectors and so the compulsory funding from banks dried up. Moreso, the market-determined interest rates have tended to exclude the real sectors, especially, agriculture, from the credit market. An assessment of the National Accounts of Nigeria indicates that the real sector contributes over 60.0 per cent to the gross domestic product (GDP), but attract only about 40.0 per cent of total credit. Worse still is the case of agriculture which contributes over 40.0 per cent of the GDP (Table 6) but attracts less than 2.0 percent of total credit. Banks were reluctant to lend for real sector activities for reasons such as poor managerial ability, ability to repay, unfavourable growth prospects in the sub-sector, inherent risk and insufficient collateral, etc.

Source: CBN Statistical Bulletin and Annual Report and Statement of Accounts, Various Issues

A review of some selected real sector indicators provides a picture of theperformance of the real sector in the face of the banking sector reforms. Real output growth has been modest over the review period, averaging 6.37 per cent. Growth rates of the agriculture and manufacturing sectors have been relatively stable. Inflationary pressures moderated between 2005 and 2006, before assuming an upward trend for the rest of the period. Average capacity utilization in the manufacturing sector averaged 53.84 per cent for the period.

 Further analysis shows that funding from the banks accounted for only 14.4 per
cent of total funds in 2006, 13.4 per cent in 2007, 18.7 per cent in 2008 and 49.7
per cent in 2009. The result of the survey also gave indications of how real sector
enterprises faired in terms of attracting bank credits. The survey showed that
banks satisfied an average of only 15.8 per cent of the number of loan requests
made by real sector firms in 2006 and 2007, and 26.3 in 2008 and 2009.
Furthermore, the study tried to establish the credit gap and explain why banks are
reluctant to lend to the real sector in Nigeria and found that, in credit packaging,
bank treasurers evaluate the safety of their funds, the liquidity of the balance
sheets and the profitability of proposed ventures. Safety has more weight the
smaller the asset base, while the need to ensure liquidity depends on the
customer base and the frequency of transactions. Profitability compensates
shareholders and guarantees going concern for the bank. Since the liberalization
of the credit market in Nigeria under the Structural Adjustment Programme, the
status of Preferred Sector was stripped off the real sectors and so the compulsory
funding from banks dried up. Moreso, the market-determined interest rates have
tended to exclude the real sectors, especially, agriculture, from the credit market.
An assessment of the National Accounts of Nigeria indicates that the real sector
contributes over 60.0 per cent to the gross domestic product (GDP), but attracts
only about 40.0 per cent of total credit. Worse still is the case of agriculture which
contributes over 40.0 per cent of the GDP (Table 6) but attracts less than 2.0 per
cent of total credit. Banks were reluctant to lend for real sector activities for
reasons such as poor managerial ability, ability to repay, unfavourable growth
prospects in the sub-sector, inherent risk and insufficient collateral, etc.

A review of some selected real sector indicators provides a picture of the
performance of the real sector in the face of the banking sector reforms. Real
output growth has been modest over the review period, averaging 6.37 per cent.
Growth rates of the agriculture and manufacturing sectors have been relatively
stable. Inflationary pressures moderated between 2005 and 2006, before
assuming an upward trend for the rest of the period. Average capacity utilization
in the manufacturing sector averaged 53.84 per cent for the period.