Business

October 12, 2015

Banking sector shrinks in second quarter

Banking sector shrinks in second quarter

Gov Central Bank of Nigeria, Central Bank of Nigeria

*Total assets fall by N186 billion
*Lending to economy falls by 1.1%

By Babajide Komolafe

Reflecting the decline in the nation’s economic activities in the second quarter, the total assets of banks fell by N186 billion while lending to the economy fell by 1.1  percent. This is in sharp contrast to development in the first quarter, when total assets grew by 4.4 per cent and lending to economy increased by 4.38 per cent.

According to the economic reports for the first and second quarter of the year by the Central Bank of Nigeria (CBN, total assets/liabilities of banks fell to N28.401 trillion in the second quarter from    N28.587 trillion in the first quarter. Similarly, banks’ lending to the economy fell to N17.262 trillion in the second quarter from N17.280 trillion in the first quarter.

Recall that the nations’ economic activities as measured by the Gross Domestic Product (GDP) grew at 2.35 percent in the second quarter, down from 3.96 in the first quarter. The Central Bank of Nigeria (CBN) in its Economic Report for the second quarter of 2015, stated,    “Available data indicated that the total assets and liabilities of the commercial banks stood at N28,400.8 billion at the end of the first quarter of 2015, representing a decline of 1.1 per cent below the level at the end of the preceding quarter.

The funds were sourced, largely, from foreign and unclassified assets disposal as well as draw-down on reserves. The funds were used, mainly, to increase capital accounts. “At N17, 279.9 billion, banks’ credit to the domestic economy, fell by 1.1 per cent, in contrast to the 4.4 per cent growth in the preceding quarter.

The development was attributed to the decline in claims on the Federal Government and the private sector, in the review quater. Central Bank’s credit to the commercial banks rose by 5.3 per cent to N303.4 billion at the end of the review quarter, reflecting increase in CBN loans and advances to banks over the level at the end of the preceding quarter.

“Total specified liquid assets of the banks stood at N6,348.1 billion, representing 35.8 per cent of their total current liabilities. At that level, the liquidity ratio fell by 0.7 percentage point below the level in the preceding quarter, but was 5.8 percentage points above the stipulated minimum ratio of 30.0 per cent. The loans-to-deposit ratio, at 67.8 per cent, was 1.6 percentage points above the level at the end of the preceding quarter, but was 12.2 percentage points below the prescribed maximum of 80.0 per cent

“At N21, 409.8 billion, aggregate banking system’s credit (net) to the domestic economy, quarter-on-quarter, grew by 3.1 per cent at the end of the second quarter of 2015, compared with the growth of 7.7 per cent at the end of the first quarter. This, however, contrasted with the decline of 7.8 per cent at the end of the corresponding quarter of 2014.”