By Chinwendu Obienyi
The oil and gas sector received 31.1% of deposit money banks’ (DMBs) total credit allocation in the third quarter of 2024, highlighting the sector’s continued dominance in accessing credit within Nigeria’s financial landscape.
According to data from the CBN’s most recent Quarterly Statistical Bulletin (QSB), the oil and gas sector accounted for 31.1% of total credit during the quarter, up from 29.9%. Conversely, the manufacturing sector, which had the second largest allocation of DMBs credit at 15%, saw its allocation of credit contract by -6% quarter-on-quarter (q/q) to around N8.7 trillion.
Furthermore, the financial and insurance sector, the third-largest recipient of credit from deposit money banks at around 13%, saw impressive growth, with a +22% increase q/q. General services sector accounted for 9% of total credit to the private sector; however, it experienced a contraction of -9% q/q, bringing its total credit to N5.0 trillion.
Consistent with historical patterns, the agriculture sector continues to struggle in securing a significant portion of banks’ loan portfolio. Credit extended to this sector fell by -5% q/q to NGN2.3trn, and its share of the overall loan book remains marginal at just 4%.
However, deposit money banks’ (DMB) credit extension to the economy increased by 5.1% q/q to N58.6 trillion as at Q3 2024.
This growth marks a slight improvement over the 4.7% q/q growth recorded in the previous quarter. That said, DMB’s credit growth has decelerated since Q1 2024, when it surged by 19.5% q/q, driven by the naira’s devaluation, which inflated foreign exchange-denominated loans.
Consequently, the growth of loans from deposit money banks has moderated, reflecting a less pronounced volatility of the naira between Q1 2024 and Q3 2024.
Reacting to the report, experts at FBNQuest noted that the deceleration of credit growth to single digits can be attributed to the cautious stance of DMBs, who are increasingly wary of accumulating NPLs in the context of a high-interest rate environment.
According to data from CBN, banks’ NPL ratio deteriorated by 68 bps to 4.58%, compared with 3.9% at the end of June 2024.
They added that beyond DMBs’ conservative lending practices, another contributing factor may be the postponement of investment decisions by businesses, driven by the restrictive monetary policy implemented by the CBN.
“Looking ahead, we anticipate that financial conditions will remain tight throughout 2025, as the Monetary Policy Committee (MPC) persists in its efforts to combat escalating inflation”, they said.
The significant allocation underscores the oil and gas industry’s critical role in the country’s economy, which relies heavily on petroleum as a primary revenue and foreign exchange source.
This statistic reflects the sector’s capital-intensive nature and its importance to banks, as it often represents a low-risk investment compared to other industries. However, this reliance may also indicate a need for diversification in credit allocation to spur growth in other sectors and reduce over-dependence on oil and gas.