Real Sector Gets N45.69Bn Credit From Banks In 6 Months
GILBERT EKUGBE.
The real sector has benefited hugely from the Central Bank of Nigeria’s (CBN) aggressive credit push to the economy, getting N45.69 billion out of the total N1.17 trillion disbursed by the deposit money banks between May and October 2019.
Lagos Chamber of Commerce and Industry (LCCI) stated in its analysis of the CBN policy and noted that the real sector requires more of the credit flow to be able to live up to expectations.
The apex bank in a bid to tackle loan defaulters and increase lending to the real sector of the economy while maintaining safe and sound financial system, introduced the Minimum Loan-to-Deposit (LDR) of 60 per cent to all Deposit Money Banks (DMBs) in the country, ordering them to support the real sector with facilities to boost their operation.
Consequent upon implementation of the policy, the Nigerian economy recorded 5.33 per cent growth in credit to the real sector from N15.57 trillion at the end of May 2019 to over N16.40 trillion at the end of September 2019 according to the data released by the CBN recently
LCCI’s request is based on the myriads of challenges facing manufacturers such as epileptic power supply, poor road network, high cost of borrowing, over-regulation, multiplicity of levies, weak demand, sluggish economic recovery, port-related challenges amongst others
Though the sector grew marginally by 1.1 per cent in the third quarter, up from 0.13 per cent in the previous months, the growth, according to the chamber is insignificant considering these constraints which made their products less competitive owing to high production cost compared to cheap foreign ones.
“Our prognosis for the manufacturing sector is mixed. We believe the manufacturing sector will continue to benefit big from CBN’s aggressive credit push to the real sector. In furtherance, we see the scope that competition between foreign and local producers will fade on prolonged closure of land borders”.
“Also, the early budget implementation for capital projects is positive for the sector. We are of the view that failure by government to fix structural constraints with regards to fixing power challenges and rehabilitating deplorable road networks, will perpetuate the poor productivity and performance of the sector,” LCCI stated.
On the broader economy, the Organised Private Sector (OPS) predict economic growth to remain subdued at around 2 per cent by 2020 as consumer demand, as well as private sector investment, would most likely remain weak.
The chamber added; “This resonates with the position of World Bank and the International Monetary Fund (IMF) that growth will print at 2.1 per cent and 2.5 per cent respectively, which is below the population growth rate of some 3 per cent, implying per capita income will contract further, making more Nigerians poorer. Amidst continued global slow growth and trade wars, we expect growth to be slow albeit stable in 2020 in the face of the implementation of recent policy measures by the government.”
The chamber stated that for Nigeria to achieve strong growth of about 6-8 per cent that is needed to effectively tackle poverty and unemployment, economic managers and policymakers must embrace structural reforms such as deregulating the oil & gas sector; harmonizing the multiple exchange windows, privatizing redundant state assets, fixing infrastructural problems of poor power supply and bad roads.
“These reforms will in no doubt deepen investors’ confidence and make the country a better destination for private investment,” LCCI added.
It noted that headline inflation is expected to trend higher in 2020 driven by myriads of factors such as the implementation of new minimum wage which will stimulate aggregate demand; continued closure of the land border; higher VAT rate of 7.5%; early disbursement of funds for budget implementation following the return of the budget cycle between January – December cycle and negative real return in fixed income market which disincentivizes investment.
LCCI expressed optimism that the apex bank would raise the bar on Loan-to-Deposit Ratio (LDR) from 65 per cent to around 70 per cent by 2020, in a push to improve credit flows to the real sector to stimulate economic growth, but however warned that an upward review of LDR will help key sectors such as manufacturing perform better, but could worsen the asset quality (raise non-performing loans) as the domestic economic landscape is still fragile as borrowers might find it difficult to fulfil obligations.
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