BusinessDay 28 Feb 2018

14
BUSINESS DAY
C002D5556
Wednesday 28 February 2018
COMPANIES & MARKETS
Banks credit to private sector to grow in 2018- FSDH
BALA AUGIE
Banks credit to
the private sector
is expected
to grow in 2018,
thanks to a drop
in yields on Treasury bills
(T-bills), improved consumer
confidence and, an
improvement in macroeconomic
condition, according
to research house, FSDH
Merchant Bank.
The total credit to the private
sector in 2017 witnessed
a marginal decrease of 2.34
percent to N15.74 trillion
compared with N16.12 trillion
in 2016, according to the
National Bureau of Statistics
(NBS).
Banks slowed down on
lending to the private sector
as an economic recession
in 2016 brought on by
a sudden drop in oil price
and a severe dollar scarcity
hindered companies and
government from paying
back interest on money
borrowed.
The most affected of
these sectors are the transportation
& storage, general
commerce, education and
information and communication.
Credit to players in
the transportation and storage
sub sector declined by
26 percent to N332.08 billion
in 2017, down from N450.75
billion in 2016. From N1.31
trillion in 2016, credit to the
general commerce sub sector
fell by 21 percent to N1.04
trillion in 2017.
Also, banks slowed lending
to the real sector as they
made money when yields on
short term government securities
hovered around 18 percent
to 21 percent between
April and October 2017.
As a result of the aforementioned
monetary policy,
13 banks raked in N562.67
billion in interest income
from treasury bills in the third
quarter of 2017, representing
a 53.55 percent increase from
2016 of N366.42 billion figure
recorded in 2016.
However, yields on 90
days short-term paper saw
a sharp decline to 8.75 percent
in January to finally hit
its current 13.10 percent as
government issued more
dollars denominated debt
and effectively reduce its
naira debt.
Analysts are of the view
that the sharp drop in asset
yields on government securities
will force banks to start
lending to the real sector as
the end of free money are
over.
They add that a rate cut by
the Central Bank of Nigeria
(CBN) will strengthen lending
to the private sector.
For the first nine months
through September 2017, cumulative
loans and advances
to customers fell by 2.62 billion
in September 2017 as
against N14.08 billion, based
on data compiled by BusinessDay.
Tajudeen Ibrahim head of
research at Chapel Hill Denham
said that the loan book
expansion will be underpinned
by possible financial
system liquidity as the central
could cut the CRR and interest
rates in the first quarter of
next year.
“We have seen the apex
slow the issuance of OMO.
Market conditions will require
that they increase lending
to the real sector. We will
surely see loan book expand
on market dynamics,” said
Ibrahim.
Credit facilities to the
players in finance, insurance
and capital market rose
by 20.1 percent during the
period. Mining and quarrying
players got credit facilities
18.7 percent more than
what they received in the last
quarter of 2016. Also, credit
facilities to the construction
sub sector were up by 4.1
percent. The governments at
all levels received saw their
facilities rise by 2.2 percent.
The agric sub sector did not
get much attention as facilities
in the last quarter of 2017
over the last quarter of 2016
rose slightly by 0.4 percent.
TL First Group CEO task FG on utilisation
of world Bank’s $486m loan
Modestus Anaesoronye
International Economist
and Group Managing
Director of TL First
Group, Olu Olasode has
tasked the Federal Government
of to judiciously utilise
the $486 million dollars fund
approved by the World Bank.
The credit which was
granted to rehabilitate and
upgrade the Nigerian electricity
transmission substations
and lines, is a welcome
investment to help alleviate
the current issues militating
against the power sector
in Nigeria, the Economist
added.
Responding to questions
on implications on rising
debt, Olasode, who is also
a Chartered Accountant,
stated “unlike many professional
colleagues who are
weary of debts, I have no
problems with increasing
your labilities if the resulting
growth in income, capital,
assets or national wealth
far outweighs the debt. In
essence, it should be about
spending to save through
better infrastructure in electricity
transmission that ultimately
powers economic
growth.”
According to Olasode, effective
utilisation of the fund
can benefit small scale business
owners and contribute
to adequate and reliable
electricity supply necessary
for Nigeria’s continued economic
development as an effortto
ease the infrastructure
constraints these businesses
currently face.Electricity
is a significant component
of virtually any production
process. As such, limited
supply has the potential to,
directly or indirectly, affect
the economic productivity
of businesses. An attendant
effect is the closure of many
Enterprises in Nigeria in the
last five years.
He stated that the Transmission
Company of Nigeria
can be better empowered
to ensure increased
transmission network and
provision of additional
electricity. He further proposed
that part of the funds
can be used to adopt new
models that tap into the
vitality of the nation’s potentials.
“For instance, investment
can be made into
solar-powered light centres
that help to increase social
activity and productivity of
communities by generating
light after sundown. These
light centres can be used to
power medical equipment
such as an ultrasound, or
refrigerators that store vaccines
at medical centres.”
“Transmission also has a
lot to do with logistic and
planning”, he continued,
“for example, how effectively
can we aggregate
and redistribute the many
dispersed power generation
by privately owned
organisations”.
Olasode, however, expressed
concern about the
sustainability of the nation’s
rising debt stock, especially
during a period when the
country’s socio-economic
development continues to
be plagued by myriad of
challenges.He urged the
Federal Government to apply
caution in contracting
more debt and identify innovative
ways to mitigate
the current debt portfolio.
Olasodesuggested that current
loan funding available
to the government should
be deployed to tap into thenation’s
creative opportunities
to facilitate economic
growth, resolve security
challenges across the regions,
address development,
generate employment and
reduce poverty.
South Africa’s JSE to launch
project bonds in March
Africa’s largest bourse,
the Johannesburg
Stock Exchange
(JSE), will begin
listing “project bonds” from
mid-March, an official said on
Monday, giving institutional
investors a window to invest
in infrastructure projects.
The bonds will provide
private firms a chance to get
a foothold in infrastructure
projects in Africa’s most industrialised
economy, where
project financing has tradi-
tionally come from banks and
government.
“We launch Project Bonds
in the second week of March,”
said spokes woman Pheliswa
Mayekiso, adding that details
of the listing would be made
public closer to the launch.
“Government and banks
alone cannot fund South
Africa’s infrastructure programme,”
the Treasury said
in a review of the 2018 budget
released last week.
“These bonds will be underpinned
by the cash flows
of a ring-fenced project, such
as infrastructure or energy
projects,” it said.
Capital markets have already
reduced lending to
some state-owned companies,
such as sole power supplier,
Eskom.
South Africa plans to
spend billions of dollars over
the next three years to build
and revamp roads, power stations
and ports, government
officials said
Buffett says ‘terrible mistake’ for longterm
investors to be in bonds
Billionaire Warren Buffett
prodded ordinary
investors on Saturday
to stay invested in
United States stocks, ignoring
price swings, guidance from
people with fancy credentials
and the temptation to load up
on bonds.
Buffett said it is a “terrible
mistake” for investors with
long-term horizons – among
them, pension funds, college
and endowments and savingsminded
individuals – to measure
their investment “risk” by
their portfolio’s ratio of bonds
to stocks.The long-time bull
on U.S. companies and the
economy issued his latest
letter to Berkshire Hathaway
Inc shareholders on Saturday.
Treasury yields have been
rising since the start of the
year, stemming from brewing
inflationary pressures and
massive bond supply to help
fund U.S. President Donald
Trump’s tax overhaul.
Higher rates have kept U.S.
equity markets under selling
pressure, as investors worry
borrowing costs could hurt
companies’ profitability.
Earlier this month, stocks
suffered their first 10 per cent
pullback since early 2016.
High-grade bonds, he said,
can increase the risk of an investment
portfolio as inflation
eats away at the return.
“There is simply no telling
how far stocks can fall in a
short period,” Buffett said.
“As an investor’s investment
horizon lengthens,
however, a diversified portfolio
of U.S. equities becomes
progressively less risky than
bonds, assuming that the
stocks are purchased at a
sensible multiple of earnings
relative to then-prevailing
interest rates.”