Without a doubt, it is a well-documented fact that Small and medium-sized enterprises (SMEs) have remained the backbone of economies all over the world and continue to represent a large percentage of businesses that contribute immensely to catalysing growth.
Bank lending is the most common source of external finance for many SMEs and entrepreneurs, which are often heavily reliant on traditional debt to fulfil their start-up, cash flow and investment needs. While it is commonly used by small businesses, however, traditional bank finance poses challenges to SMEs, in particular to newer, innovative and fast-growing companies, with a higher risk-return profile.
Almost every business with innovative ideas that later blossomed into thriving organisations/ conglomerates were aided or supported by financial institutions who saw the viability of their innovation and wasted no time in helping them actualise that dream or success.
Most especially in a time of crisis exacerbated by the COVID 19 pandemic, when economies all over the world were shut down with jolted by the crisis businesses across the world needed significant credit support like a fish craves oxygen and most understandably became distressed in the absence of it. Nigeria was no exception as the economy slipped into recession for the second time in four years as oil prices plunged in the midst of the COVID-19 pandemic.
While bank financing will continue to be crucial for the SME sector, there is a broad concern that credit constraints will simply become “the new normal” for SMEs and entrepreneurs. It is, therefore, necessary to broaden the range of financing instruments available to SMEs and entrepreneurs, to enable them, continue to play their role in investment, growth, innovation and employment.
During the turbulent economic situation where businesses suffered under the weight of COVID, insecurity and other economic challenges, a few banks were upstanding and served as adequate lifeline to businesses helping the economy surmount its numerous economic challenges. One of the banks worthy of mention was the United Bank for Africa who was innovative enough to help weather the storm with several loan facilities that practically helped change the narrative and eventually catalyse growth.
Eight banks gave out loans and advances worth N760 billion in the first quarter (Q1) of 2021 in a bid to stimulate economic growth constrained by numerous headwinds, according to data compiled by THISDAY.
The banks are: United Bank for Africa (UBA) Plc Access Bank Plc, FBN Holdings Plc, FCMB Holdings Plc, Fidelity Bank Plc, Stanbic IBTC Holdings Plc, United Bank for Africa (UBA) Plc, Wema Bank Plc and Zenith Bank Plc.
UBA was ahead it peers with N178 billion, in the three months under review to put its loan portfolio to customers at N2.733 trillion, from N2.555 trillion.
Stanbic IBTC gave out N105 billion loans to customers, making its total portfolio as at the end of Q1 to be at N730 billion, up from N625 billion in December.
FBN Holdings Plc gave out N82 billion as loans to customers, raising its portfolio from N2.217 trillion to N2.299 trillion, while FCMB lent N63 billion during the review period, thereby bringing the bank’s loan portfolio to N886 billion, up from N823 billion in December. Access Bank Plc accounted for N38 billion to bring its loan portfolio to N3.256 trillion compared to N3.218 trillion, while Wema Bank Plc gave out N8 billion in the Q1 to end with a loan portfolio of N368 billion, from N360 billion.
Commenting on the credit to customers by banks, a financial expert and securities dealer, Mr. David Adonri of Highcap Securities Limited, said short-term credit was required by businesses to finance their working capital.
Banks are the source of this type of finance. As a result of risk management considerations, bankability of requests is a major factor in credit creation. Of course, banks will usually observe the canons of lending when granting credits. If the economic environment is conducive and prospect is bright, the confidence to grant credit to borrowers will be high because repayment is guaranteed,” he said.
According to him, the volume of credit granted in Q1, 2021 by banks rose because of increase in economic activities.
“Fund users demanded more credit during the period to ramp up their products and services to cover increased consumer pull. The demand on banks for credit also resulted in increased borrowing by banks from Central Bank of Nigeria (CBN) during the period.
“The supply gap in the economy is still huge and this will increase demand for bank credit. As a result, banks like UBA is poised to create more credit this year to meet the rising Gross Domestic Product (GDP) growth rate revised from 1.5 per cent to 2.7 per cent,” he added.
Speaking on the bank’s recent loan position and consequent determination to buoy the nation’s SME sector, Group Managing Director, Kennedy Uzoka said “Our passion for Small Businesses and great ideas has never been in doubt and is evident in the firm support given the business community as our loan products are tailored specifically to meeting the varying needs of all our customers.
Continuing, Uzoka said, “Despite the tumultuous impact of Covid-19 pandemic globally and across our 23 countries of operation, we created N519.0 billion additional loans as we continued to support our customers and their businesses. Customer deposits grew 48.1% to N5.7 trillion, driven primarily by additional N1.8 trillion in retail deposits. As a global bank, we remain well capitalized and determined to successfully drive financial inclusion on the continent through our innovative products and vast network. Our capital adequacy and liquidity ratios came in at 22.4% and 44.3%, well above the respective regulatory minimum of 15.0% and 30.0%.
Speaking on the bank’s strategy, he said, “Our primary strategy will continue to focus on providing excellent services from our customers’ standpoint, putting the customer first always. Looking ahead, I am inspired by the achievements we have made since the launch of our transformation programme. We have expanded market share considerably across the geographies where we operate and are consolidating our digital banking leadership in Africa. We will continue to leverage our diversified business model and dedicated workforce to further strengthen our position as ‘Africa’s Global Bank’.”
Also on the performance, the Group Chief Financial Official, Ugo Nwaghodoh said, “The persistent low interest rate environment in 2020 exerted significant downward pressure on margins. Notwithstanding, our interest income for the year grew by 5.7% (to N427.9 billion), driven by 8.2% and 7.5% year-on-year growth on interest income on loans and investment securities respectively. Our interest expense declined by 8% (to N168.4billion) driven largely by a 34.2% decline in interest expense on customer deposits in our Nigerian operations, bringing down the Group’s cost of funds to 2.9%, from 4% in 2019.
While giving an insight to the bank’s array of loan products changing the dynamics in the industry, Group Head Consumer Lending, Anant Rao recently spoke about some of the products and intrinsic benefits to customers as he said Click Credit is one of the bank’s vibrant facility, which seamlessly supports customers.
“It is an automated loan with no form of documentation, paperwork or queue. Customers can get up to N1 million instantly and pay through a period of 12 months. This loan product of UBA is known for speed, efficiency and competitive rate. This product is available to all salaried customers. Customers can apply by dialling *919*28#, sending “Loan” to Leo and clicking on the “Click Credit” feature on the mobile app or Internet banking.
Anant further explained that no document was required to access the loans. There is also the UBA Structured Loans, Personal Loans, Auto Loans, Asset Finance Mortgage.
As for Personal Loans, Anant said: “It is a product designed to aid the finance of the daily needs of our customers. Available to employees of enlisted counter-parties whose salaries and other emoluments are being paid through UBA or are willing to transfer their accounts to UBA.
“Here, required documents include letter of introduction and awareness from employer, copy of customer’s staff ID, copy of customer’s Valid ID, duly accepted offer letter and duly filled loan application form.’’
He explained that Asset Finance, one of its products, was designed to facilitate the purchase of physical assets ranging from household appliances to alternative power solutions and devices by our retail customers through approved partnering vendors, giving them the convenience to pay over a period. Customers must be employees of bank’s approved counterparties.
The bank listed the required documents as letter of introduction and awareness from employer, copy of customer’s staff ID, copy of a customer’s valid ID, proforma invoice in UBA/customer’s name and duly filled loan application form as well as accepted offer letter.
Mortgage UBA Mortgage Loan is a product designed to part-finance the acquisition of residential real estate by salary earners whose employers are listed on the bank’s approved counterparty list.
“The product is targeted at High Net Worth Individuals (HNIs) with predictable and sustainable income. The product is to enable customers buy fully developed properties or draw equity from their home as loans for specific purposes,” the bank said.
The UBA Personal Loan – Direct is a variant of UBA Personal Loan product targeted at civil servants whose salaries are not domiciled with UBA. The product is designed to offer personal loans to civil servants who have difficulties in changing their salary accounts from other banks to UBA.
This loan is available to Federal civil servants that are enrolled on IPPIS platform, state civil servants (this will be limited to states whose salaries are managed by ICT firm). The required documents include duly filled loan application form, a copy of customer’s staff ID, a copy of customer’s valid ID and customer’s instruction letter.
The UBA FX Cash Backed Loan is a term loan designed for Nigerians that operate FX accounts with the bank. Customers can get up to N10 million for investment or to meet the financial needs of relatives in Nigeria.
Also, the UBA Working Capital loan offers up to N50million to help business owners meet their cash flow needs and expand their business. A flexible collateral cover will be required depending on the loan amount and the nature of customer’s business.
This loan product is targeted at customers with verifiable credit networth whose cash flow patterns meet the requirement for lending and other structured groups/business clusters
There are also the UBA Asset Finance for SMEs, the UBA School Loans and the UBA Health Loan.
“It is a medium-to-long term facility aimed at meeting working capital, asset and mortgage needs of registered privately-owned schools. The bouquet comprises a four-month time loan, a three-year asset finance loan and a 10-year mortgage loan.
“The UBA Health Loan is designed to provide financing to registered hospitals, pharmacies, medical laboratories, diagnostic centres, optical and dental clinics for their business expansion/upgrade, equipment purchase as well and support their cash flow needs,” the bank said.