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CBN worried by slow growth in bank lending

Weak bank lending to the Nigerian economy is a “major worry” and although the central bank wants single-digit inflation by the end of the year it will do nothing to jeopardise growth, its governor said on Thursday.

Businesses and consumers in sub-Saharan Africa’s second biggest economy have complained of difficulty sourcing long-term credit in the wake of a $4 billion bank sector bailout last year as banks tightened lending criteria. Bank credit growth to the private sector was virtually stagnant at 0.3 percent in the first half of the year.

“(Bank lending) is a major worry because we would like to get more money into the real economy,” Central Bank Governor Lamido Sanusi told Reuters in an interview on the sidelines of a conference in London. “Bank lending has not been growing as fast as we would like it to grow. So as far as upside risk to inflation, it is not very high,” he said, speaking ahead of a monetary policy committee (MPC) meeting next Tuesday.

He noted however higher government spending, with elections due next January, and the establishment of an asset management company (AMCON) to soak up bad bank loans should help put more money into the system, meaning the inflation risk was not zero.
“(The risk) is there with an election year and with money likely to come in with the asset management corporation. The discussions at MPC next week will be on the relative balance of inflation and expenditure,” he said.
Nigeria has held interest rates at 6.0 percent for more than a year to try to revive lending, despite double-digit inflation. But the MPC said at its last meeting in July that negative money supply growth and weak credit were still challenges.
“We are hopeful of achieving single digit inflation by the end of 2010 but it depends on the indicators in the economy. Let me assure you that whatever we do should not disrupt growth,” Sanusi said. “Growth is a priority”.
Consumer inflation was 13.0 percent year-on-year in July, down from a revised 14.1 percent in June.
The central bank last year injected $4 billion into nine banks judged to be so weakly capitalised they posed a risk to the entire banking system.

A tenth bank was judged to have insufficient capital but received no capital injection because it was deemed to have a healthy liquidity position.

The central bank has since been seeking investors to recapitalise all 10 and has said a number of foreign banks and private equity companies have expressed interest.

South Africa’s First Rand, Standard Bank and Nedbank have all said they are interested in investment opportunities in Nigeria. Sanusi said he had received good bids for some of the rescued banks but that he needed to protect shareholder value and not every bid would be accepted.

“We would like to complete deals as soon as possible but we need to protect shareholder value. Many people are of the opinion that these banks are there for the taking and they can get them for nothing,” he said.

“Some of the bids are very good, some of them are acceptable given where we stand. Given that we have AMCON and they can recapitalise the banks, we can get a better deal, so we don’t have to accept every offer,” he said.


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