Following the negative impacts of Covid-19 on the nation’s economy, local manufacturers under the auspices of Manufacturers Association of Nigeria (MAN) have raised the alarm that the size of commercial bank loan available to the real sector of the economy has reduced greatly and consistently discouraging manufacturing in the country.

Statistics from Central Bank of Nigeria (CBN) indicated that banks’ credit to the private sector rose by 15 per cent (N3.47 trillion), from N22.94 trillion in January 2019 to N26.41 trillion as of November 2019 following the apex bank’s directive mandating banks to loan out 65 per cent of total bank deposit to the real sector of the economy.

It was gathered from MAN that the decline in the banks’ credit to the real sector of the economy is not only connected to the Covid-19 outbreak but changes in increase in government borrowing from banks, which continues to crowd out the real sector because of the challenges presented by the pandemic.

According to CBN’s data, banks’ credit to government and the private sector hit N36.48 trillion in September last year, with banking sector credit to private sector rising to its highest last year, increasing by 2.61 per cent in September from N24.8 trillion in August.

This happened after a period it experienced marginal decrease recording N24.88 trillion, N24.76 trillion and N24.29 trillion in May, June and July 2019 respectively.

In an interview with our correspondent on the size of bank loan available to the real sector, MAN President, Mr Mansur Ahmed, explained that report reaching MAN headquarters showed that commercial banks were not willing to accept the applications for the size of loans local manufacturers are applying for because of illiquidity caused by Covid-19.

This is despite CBN’s directive to lending to the private sector.

He said the situation was greatly retarding the country’s manufacturing sector growth in all ramifications.

According to him, many of the banks are saying that they are not buoyant enough to accept the size of loans applications local manufacturers are asking for and this is sending bad signal to the manufacturing sector and investors.

MAN president also noted that the decline in size of bank loan to the sector could be traced to increase in government borrowing, which continues to crowd out the real sector.

He, however, called for an urgent need to effectively monitor the loan to deposit ratio (LDR) policy of the central bank.

Already, criticisms have trailed the current 65 per cent LDR ratio, as experts argue that it might increase the level of non-performing loans in the economy.

For instance, International Monetary Fund recently disclosed that the balance sheets of banks would be weak due to the LDR’s directive from CBN.

Ahmed said: “On the size of loan to the sector, about 50 per cent of respondents submitted that the size of commercial bank loan available to the sector has shrunken greatly and consistently discouraged manufacturing, as government borrowing continue to crowd out the real sector in the novel corona virus pandemic.

“Also, 24 per cent were not sure if the size of the bank loan to the sector has encouraged increased productivity, while 26 per cent of CEOs of manufacturing companies agreed that the volume of commercial banks loan to the sector encourages productivity in the sector as against 30 per cent that were in agreement in the first quarter 2020.

“This finding clearly points to the existence of an urgent need to effectively monitor the loan to deposit ratio policy of the central bank to ensure improved productivity and ultimately increase in manufacturing jobs.

“This will further promote economic diversification objective of the government by stimulating real domestic output in the immediate and long-term period.”

 

New Telegraph