On Wednesday, 26th of February 2020, Zenith Bank announced
that it will slow its loan growth to 2 percent in 2020. This follows a year in
which the financial institution had an aggressive extension of loans to
businesses in Nigeria, in compliance with the new minimum loan-to-deposit ratio
policy introduced by the central bank.
The lender experienced a 22 percent expansion in loans last
year, from 2.02 trillion naira in 2018 to 2.46 trillion naira, it said.
According to a statement by Ebenezer Onyeagwu, Zenith Bank’s new CEO, loan
growth is “a reflection of what we see in the macro-environment” and the bank
“can’t grow beyond the economy.” But it also indicated that loans could grow
further if large funding opportunities emerged during the year.
There are other factors that may have contributed to the
bank’s decision to cut back on lending such as the recent outbreak of the
coronavirus and the forecast by the International Monetary Fund (IMF) of
Nigeria’s economic growth.
Another statement by the Bank’s chief executive indicates
that due to the impact of the coronavirus in China, Nigeria’s major trading
partner, a possible slowdown in demand for loans is bound to happen.
The Asian nation in recent years has become one of the world’s
leading industrialists but the recent outbreak of the deadly coronavirus has
become a major threat, not only to its economy but also to those of its
business allies. The country, over the decades, has positioned itself to trade
with almost every nation of the world. It imports raw materials in large tonnes
from Africa and other developing countries, which are used to make
sophisticated products that are sold the world over. This makes its economy
interact with many others daily.
However, the epidemic has caused a meltdown in the Chinese
economy and the immediate impact of the coronavirus is felt in many developing
economies like Nigeria due to slowdowns in the importation of finished goods
and the export of raw materials. This is also directly slowing down the rate at
which money flows into the economy as importers are forced to consider costlier
alternatives, resulting in an increase in the prices of products.
Moreover, consumers are becoming more conscious of their
spending. Therefore, if buyers are reluctant to spend, business owners would
have no immediate need for loans to expand their businesses.
After reviewing current events, the IMF last week reduced
its growth forecast for Nigeria in 2020 to 2 percent from 2.5 percent. The Fund
cited that there would be lower demand for crude oil due to fears that the
coronavirus outbreak in China will cause a slowdown.
Nigeria is Africa’s largest producer of crude oil, its main
foreign earner, accounting for 95 percent of foreign exchange earnings and 80
percent of budgetary revenues. Going by the IMF’s forecast, there would be a
slowdown in oil demand globally which would limit the flow of foreign currency
in Nigeria, slow down businesses and therefore reduce the demand for business loans.
