Rising bank credit to oil & gas amid diversification plans

With a majority of bank credit going to the oil and gas industry, economic diversification remains an optimistic sentiment. Low credit share to critical economic sectors further challenges the prospect of meaningful growth in Nigeria.

• Private sector received ₦37.3 trillion as credit in the first and second quarters of 2020;

• Of the sum, the oil and gas sector accounted for about 27% of total banking credit in Q1 2020 and 26% in the second quarter of 2020;

• Agriculture, construction, transportation and storage, power and energy, and education only received 15% of the total bank credit in Q1 2020 and 16% of the credit in Q2 2020;

• The credit outlook from Nigerian banks appears to show minimal prospects for development;

• Nigerian banks should step up to improve and promote access to credit for critical sectors that can further drive real economic development.

Nigeria once again showcases its “mono-commodity-ness” in its sectoral credit disbursement. For participants in the oil and gas sector or even manufacturing, securing a loan was relatively easy. This, however, was not the case for the would-be change drivers in agriculture, education, construction and energy. 

For education, she accessed 0.39% and 0.36% credit in the first and second quarter of the year. Healthcare is still waiting on that alert since 2015. All the while, oil and gas enjoyed 26.27% credit in both quarters for the year.

These are some findings from the National Bureau of Statistics’ selected banking sector data.

An overview of bank credit to the private sector

Overall. the private sector received over ₦37.3 trillion as credit in the first and second quarters of 2020. In the first quarter, banks disbursed ₦18.5 trillion and  ₦18.8 trillion in Q2 2020. For the first quarter of the year, the oil and gas industry received ₦3.6 trillion, which represents almost 20% of the total bank credit for the quarter. In the same quarter, the oil and gas service sector received an additional ₦1.3 trillion in credit.

Thus, the oil and gas sector accounted for about 27% of total bank credit to the private sector in the first quarter of the year. After the oil and gas sector, the manufacturing industry received the next highest share of credit from Nigerian banks (16%). Following was general (9%), government (8%), finance, insurance and capital market (7%), and trade/general commerce (7%). Coming in last place was mining, education, and power and energy, accounting for the least credit in the first quarter of the year. Mining had only 0.06% of total credit while education received just 0.4%.

The situation remained unchanged for the second quarter of the year, with oil and gas atop the credit list. Nigeria’s main commodity accrued over ₦4.9 trillion in credit for Q2 2020 (26% of total credit). Manufacturing received 16% and the government received 8%. Credit to finance, insurance and trade was 7.3%. Mining and quarrying received the least credit (0.06%). Education follows this with 0.36%, while power and energy amounted to 3.8%.

Sectoral distribution of credit by Nigerian banks

Credit to Economic Drivers

Economic drivers such as agriculture, construction, transportation and storage, power and energy, and education received only a meagre share of the total bank credit to the private sector. Cumulatively, these five listed sectors received only 15% of the total bank credit in Q1 2020 and 16% of the credit in Q2 2020. This comes to about ₦3 billion for each of the successive quarters. The statistics also revealed that the health sector received no credit. In addition, Nigeria’s real estate sector only received 3.52% and 3.54% of the credit for Q1 and Q2, 2020. Of the identified critical economic drivers, education received the least credit for both quarters.

Implications for development

The credit outlook from Nigerian banks appears to show minimal prospects for development. More so, with most of the credit going to the oil and gas sector, other sectors may continue to struggle for survival. And even with all the credit it accrued, oil and gas has been on the decline. What’s more, the minimal credit access to these sectors threatens Nigeria’s diversification dream.

Again, experts have attributed the lack of sustainability in Nigeria’s agricultural sector to underfunding. Similarly, many reports suggest that poor funding is killing the country’s health sector. Funding for education is also below the benchmark. Thus, Nigerian banks should step up to improve and promote access to credit for these critical sectors that can further drive economic development. Besides, for meaningful infrastructure development, banks should afford construction and energy more credit.