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Bankers have expressed optimism that the sector would be better disposed to create new assets by increasing their loan facilities to more applicants this year.

This is because some of the banks in their 2010 year end books have demonstrated that with the intervention of the Asset Management Company (AMCON), they have been able to clear their non performing loans from their books.

This move, they say, would place them in a better position to create new assets, a responsibility they have been shying away from since the industry’s crisis about two years ago.

Investigation reveals that though the banks had sufficient liquidity in 2010, their hesitation to create new assets by granting loan facilities was of huge concern.

Better days ahead

For instance, Stanbic IBTC in its 2010 year end results presentation recently said, “There was significant market liquidity, with resultant reduction in interest rate.” It, however, added that there was “limited investment outlets to channel excess liquidity”.

First City Monument Bank (FCMB), in its presentation of its 2010 financial performance, said it is optimistic that “Asset quality should improve further retail lending, commercial banking, project and structured finance to drive loan growth in 2011.”

The bank said retail business is expected to achieve fully loaded profitability, driven by deposit growth, loan growth, and improved interest rate environment.

One of the major factors that contributed to unusually low yields of banks was the pervading risk averse attitude, such that instead of making loans available to the real economy, banks rather invested in government debt market.

Adesoji Solanke, banking analyst at the Renaissance Capital, an investment bank, is, however, optimistic that the “implementation of AMCON activities in 2011 will increase the ability of banks to provide credit to their customers and promises to reduce volatility in the market”.

Renaissance Capital, in a research note on the industry, said there is a gradual dissipation of banks’ asset quality concerns.

According to it, “Our Nigerian banks’ analyst expects an uptick in lending activity to impact positively on banks’ income in 2011.”

Asset quality concerns in the Nigerian banking space are expected to end soon, when AMCON should have purchased all non performing loans in the sector.

It is expected that the extension of the interbank money guarantee by the Central Bank would improve confidence in the money market, the marginal growth in private sector credits and competition for good quality assets, and the ongoing reforms in the banking industry would help the banks gain more confidence to lend to credible applicants.