Manufacturers shun bank loans amid surging interest rates

VANGUARD

For the first time in two years, credit to the manufacturing sector recorded a quarterly decline in 2024, following weakening appetite for bank loans among manufacturers as a result of the continuous interest rate hike by the Central Bank of Nigeria (CBN). In a bid to curtail the persistent rise in the inflation rate, the CBN in two years raised the benchmark interest rate, the Monetary Policy Rate, MPR, 13 times to 27.5 per cent November last year from 11.5% in April 2022. As a result, average maximum lending rates of banks rose to 31.06 per cent in November last year from 27.37 per cent in April 2022.

Vanguard investigations showed that the ensuing high interest rate regime has weakened appetite for bank loans among manufacturers. Industry experts and analysts, who confirmed this trend, said that manufacturers now either postpone investment decisions or seek alternatives to bank loans. Reflecting the impact of manufacturers’ apathy to bank loans, Credit to the Manufacturing fell by 6.67 percent, quarteron- quarter, QoQ to N8.67 trillion in the third quarter of 2024, Q3’24 from N9.29 trillion in the preceding quarter (Q2’24).

This represents the first quarterly decline in credit to the sector in two years since the third quarter of 2022, Q3’22. Analysis of the CBN statistics also showed that the credit allocation to the manufacturing sector maintained a quarterly upward trend from Q3’22 to Q2’24, before recording a decline in Q3’24. According to the apex bank, credit to manufacturers rose QoQ by 12.3 per cent to N5.10 trillion in Q3’22; and by 9.2 per cent to N5.57 trillion in Q4’22. This upward trend continued in 2023 as credit to the sector rose QoQ by 1.8 per cent to N5.67 trillion in Q1’23; by 23.1 per cent to N6.98 trillion in Q2’23; by 5.2 per cent to N7.34 trillion in Q3’23; and by 5.3 per cent to N7.73 trillion in Q4’23. Also in Q1’24, credit to manufacturers rose QoQ by 12.5 per cent to N8.70 trillion and again by 6.8 per cent to N9.29 trillion in Q2’24.

This upward trend was however reversed in Q3’24 when credit to the sector fell by 6.67 per cent to N8.67 trillion. Manufacturers seeking other funding options Speaking to Vanguard on this development, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said many manufacturers may have opted for other sources of funding because it does not make sense to take fresh facilities at interest rates above 39 percent.