Unless the current short term structure of bank deposits is reversed, banks in the country would remain unable to extend longer tenure loans.
A recent report from the Central bank of Nigeria (CBN) has shown that short term deposits of less than 30 days constitutes 73.3 per cent of banks’ deposits while long-term deposits of more than three years accounted for only a negligible 1.0 per cent. Deposits of between three months and one year accounts for the differential.
Banks have been largely berated for not lending enough to the productive sector of the economy. The banks on the other hand often argued that loans requirement of that sector are predominantly long-term and as such cannot be accommodated by the structure of their deposits.
On the lending side, the Financial Stability Report of the CBN indicated that banks’ outstanding credits as at June 2011 indicated that loans of short-term maturity – one year and below – accounted for 62.2 per cent of the banks’ total loans and advances structure for the period.? The medium term loans – one year and above – accounted for 14.6 percent while long term – three years and above accounted for 23.2 per cent.
Data from the CBN’s Money and Credit Statistics indicates that banks extended a whopping N12.9 trillion as loans to the private sector as at December 2011 compared to a total of N8.5 trillion extended as at the end of May 2009 just prior to the commencement of the Sanusi regime and consequent banking reforms. However, as indicated by the FSR report, the bulk of these loans and advances are short term in nature.
Recall that prior to the reforms banks were averse to lending to the private productive sector because of the attendant high risk. The bulk of the credit in their kitty was utilised on insider related credit as well in funding margin trading activities on the Nigerian stock market, which resulted in Non-performing loans (NPLs) taking over more than a third of total banking credit.
Since the commencement of the reforms, banks have systematically increased their intervention in the funding requirements of the private sector as indicated by the data, which showed that over the level of N9.7 trillion at end-December 2010, aggregate banking system credit to the private sector rose by 33.3 per cent, due, largely, increase in claims on the private sector.