•Professor Charles Soludo Photo: Sun News Publishing

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Analysts from various quarters have recently expressed opinions on the huge profits declared by Nigerian Banks, suggesting that inspite of jumbo profits declared by banks they are not performing their traditional lending role to the real sector.

The Governor of the Central Bank of Nigeria (CBN), Professor Charles Soludo in a paper titled “Banks and the National economy: Progress, Challenges and the Road Ahead” x-rayed the progress thus far with respect to the Nigerian economy post consolidation, the challenges faced by banks and the prospects in the medium to long term.

He noted that Total Credit to the economy had a Compound Annual Growth Rate (CAGR) of 41.43% between 2003 and 2007, Credit to Core Private Sector had a CAGR of 42.71% between 2003 and 2007, Total Credit as a percentage of Non-Oil GDP stood at 30.6% in 2007, compared with 20.7% in 2003, while Credit to Private Sector as a percentage of Non Oil GDP stood at 31.4%, compared with 20.5% in 2003.

Recent evidence also revealed that the Nigerian Banking Sector asset base grew by approximately 277% between 2003 and 2007 with about 11 banks having over US$1 billion by end February, 2008. Also, the share of banks in the Nigerian Stock Exchange (NSE) most capitalized companies rose substantially - 30% (2003); 65% (2007). It is of note that Bank Credit to private sector as percentage of GDP stands at 31.4% in 2007, compared with 18.4% in 2003; however, South Africa, Tunisia, Morocco, and Egypt stands at 92.1%, 63%, 60.7%, and 42.4%, respectively in 2007.

Banks’ increased earnings is attributable to the rapidly growing telecommunication sector and financing of the Oil & Gas sector with average sectoral credit showing that the Oil & Gas and Telecommunications sectors have been receiving a major share of the credit extended to the private sector at 22.5% and 21.71% respectively, compared with 3% and 18.4% extended to the agriculture and manufacturing sector between 2003 and 2007. The banks have maintained that the poor state of infrastructure in the country has been responsible for inadequate financing of the real sector of the economy.

The CBN governor was of the opinion that banks are not making “too much” profit because return on equity is still relatively low and alluded to the huge potential for significant growth in the sector. A cursory look at recently released Unaudited Accounts of some banks show that Bank PHB’s Q3 grew its bottom line at above 200%, Skye Bank above 240% and Oceanic Bank at 145% meaning that their diluted earnings per share at the end of the current financial year will be an improvement over the previous years.

In our opinion, even though banks are not making too much profit, they are not financing the real sector of the economy adequately due to the poor state of infrastructure in the economy which makes borrowing cost higher than it should be. Government should continue in its effort to improve on the state of infrastructure in the country to accelerate growth in the real sector of the economy.