Let’s talk about where the money’s been flowing in the first half of 2023. So, it turns out that the big bucks have been going to the Oil and Gas and Manufacturing sectors. These two heavyweights gobbled up a whopping 55.5% of the N8.03 trillion increase in loans during this period. That’s a whole lot of moolah!
The Oil and Gas sector snagged the lion’s share with a whopping N3.09 trillion, which is about 38.8% of the fresh loans in H1’23. Following closely behind is the Manufacturing sector, which got a cool N1.42 trillion, making up 17.5% of the loans.
Now, let’s take a peek at the other sectors. The financial sector, which includes Finance, Insurance, and the Capital Market, got a decent chunk of N837 billion, accounting for 10.4% of the new loans. Trade and General Commerce also got a good slice of the pie with N670 billion, making up 8.3% of the loans. The Information, Communication, and Technology sector received N517 billion, which is about 6.4% of the new loans.
But wait, there’s more! General Services and Constructions got N398 billion and 348 billion respectively, making up 5.0% and 4.3% of the new loans. The Power and Energy sector received N287 billion, which is about 3.6%, while the public sector (government) got N125 billion, making up 1.6% of the new loans.
Now, here’s the kicker. Lending to the Mining & Quarrying sector took a bit of a hit, dropping by 16.6% to N29.59 billion. The Education sector also saw a drop of 11% to N84.19 billion. Ouch!
So, why the big bucks for Oil and Gas and Manufacturing? Well, according to the Head of Equity Research at FBNQuest Securities Limited, Tunde Abidoye, a big chunk of loans to these sectors are in US dollars. This surge in bank loans to both sectors was mainly due to the 40% devaluation of the naira after the CBN floated the currency in June 2023.
As for the decline in lending to education, mining & quarrying sectors, Abidoye reckons that banks may have tightened their risk management criteria due to the high interest rates. He also thinks that credit demand from these sectors may have reduced because of the high interest rates on loans.
But here’s the thing – this lending spree might not last. Abidoye believes that the high interest rates could eventually put a damper on banks’ lending to the real sector. Businesses, especially SMEs, might hold off on their investment decisions because of the high interest rates. And when investments are delayed, it could slow down the growth of the economy.