Markets

Loan Growth: Banks Risk Asset Bubble Reminiscent of 2007

Following the increasing growth in loan to the private sector by banks, experts have warned that Nigerian banks risk assets bubble  that is reminiscent of 2007 and 2008.
Net loans from the banking system (including the CBN) to the private sector increased by 1.8 per cent month-on-moth (m/m) in February, and by 10.5per cent year-on-year (y/y).
 
The private sector is defined as the domestic economy other than the Federal Government of Nigeria (FGN).  It includes the state governments, whose borrowings, THISDAY checks revealed, amounted to N731 billion at end-November.
 
THISDAY findings showed that the total loans  for the private sector in February 2014, was N16.7 trillion, or 35 per cent of estimated 2013 Gross Domestic Products (GDP).
 
However, experts at FBN Capital believe the development is worrisome and could pose a threat to the banking system if not checked.
 
According to FBN Capital, “If we strip out the CBN from the figure for the banking system, we have data three months older and a story of comparable credit growth. Banks’ credit to the private sector rose in November by 1.6 per cent m/m and 9.6 per cent y/y.
“The banks in the present reporting season (for Q4) are guiding to loan book expansion of up to 20 per cent for 2013. This is also our expectation for this year. More rapid growth could in our view create an asset bubble reminiscent of 2007 and 2008.”
 
The experts also stressed that commentators who argue for monetary easing to stimulate lending should recall that credit expansion is constrained by banks’ skill sets and risk appetite, as well as the attractive yields on government paper.
“We can eliminate one potential source of inflationary pressure; broad money (M2) contracted by 0.9 per cent m/m in February, and by 1.5 per cent y/y. Others are for real (naira exchange-rate and fiscal performance), “they said.

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