By ONYINYE NWACHUKWU
Only 1 percent of financing for formal businesses in Nigeria comes from the banks and other financial institutions, figures from the Ministry of Finance have indicated.
This, interestingly, is in spite of several efforts by the Central Bank of Nigeria (CBN) and government stimulus to encourage the banks to expand lending, especially to the real sector. The Ministry of Finance figures is based on computation of the CBN and World Bank data.
Rather than depend on the banks, these businesses source a huge chunk of their financing, up to 70 percent internally, basically from their retained earnings, as 25 percent of the financing often comes from suppliers’ credit and advances from customers while the remaining 4 percent is sourced from family and friends.
The report further confirms that banks are still averse to lending, especially to the private sector which has the potentials to spur economic growth, preferring instead to lend to the government.
The situation, which was heightened by the impact of the global financial crisis, had contributed to the damage in the balance sheets of the Deposit Money Banks (DMBs).
To further validate the situation, the CBN in January had said that growth in aggregate credit to the domestic economy (net) in December 2010 was quite low at 6.13 percent, compared to the 59.6 percent recorded in the corresponding period of 2009.
But, aggregate credit to the federal, state and local governments grew by 67.83 percent and 19.17 percent respectively.
Credit to the private sector contracted by 4.92 percent in contrast to the indicative benchmark growth of 31.54 percent for 2010.
CBN had noted that the growth in credit to the three tiers of government, against the backdrop of the decline in private sector credit is a reflection of the fact that government borrowing had to some extent crowded out private sector credit.
The CBN governor, Sanusi Lamido Sanusi has consistently said the apex bank’s monetary policies alone cannot resolve the present credit crisis, insisting that it also requires the concerted efforts of government to fix the current infrastructural bottlenecks.
Sanusi was quoted on Thursday to have argued that banks will only lend to businesses if they were satisfied with the risk criteria involved in the transactions.
Liquidity to the Nigerian economy had in the recent past come from five sources – The banking sector, capital market, remittances from Nigerians abroad, foreign direct investment and government spending.
Of recent, however, four of these five sources of funding had dried up.
Source: Business Day
