Nigerian banks are increasingly favoring government securities instead of extending credit to the private sector, according to S&P Global Ratings. This shift is attributed to heightened economic uncertainties and a strategic focus on preserving recently raised capital.
During an interview at the S&P Global Africa Summit in Lagos, Samira Mensah, the Managing Director of National Ratings & Analytical Solutions for Africa, noted that while the recapitalization of the banking sector has strengthened financial positions, the current economic landscape is influencing lending practices. She explained that banks are calibrating their exposure to government securities in various ways, adjusted for prevailing interest rates and yields.
Mensah emphasized that, under certain economic conditions, banks might weigh the risks of sovereign investments favorably compared to those associated with private-sector loans. She pointed out that this tendency differs among markets, reflecting a broader strategy by many Nigerian banks, which have expanded their operations across the continent. This pan-African approach enables them to assess risks from a continental perspective and adapt their lending criteria based on varying economic conditions in different countries.
The report by S&P also highlighted that the sluggish growth in loan books in Nigeria and other markets is partially fueled by both domestic and international macroeconomic challenges. As lending slows, the accumulation of non-performing assets has been restrained.
Additionally, S&P addressed Nigeria’s ongoing struggles with infrastructure financing and economic recovery, citing escalating financing costs, inflationary pressures, and limited access to long-term capital as significant hurdles. The agency called for a transition towards larger, standardized platforms for infrastructure investments, as many projects fail to meet the investment thresholds required by international capital.
Furthermore, S&P underscored the critical role of developing deeper domestic capital markets to mobilize resources effectively from pension funds, insurance companies, and banks. It specifically pointed out the importance of initiatives like InfraCredit Nigeria, which guarantees local-currency bonds, although the overall volume remains insufficient to meet Nigeria’s infrastructure needs.
