Nigeria's Zenith Bank Eyes Shift to Retail Loans on Oil Risk

(Bloomberg) -- Zenith Bank Plc, Nigeria’s second-biggest lender, is increasing its focus on consumer lending as lower oil prices weigh on the economy, hurting its business customers.

The Lagos-based bank is expecting to expand retail loans as a percentage of total credit to about 4 percent this year from less than 1 percent in 2018, Chief Executive Officer Peter Amangbo said in interview at the bank’s headquarters. It will achieve this by making a bigger push into personal loans, car financing and mortgages, he said.

“There is a lot we’re doing on revenue,” Amangbo said. “We expect our retail franchise to grow. Our electronic business, our digital banking is growing.”

Zenith is making the shift as a 30 percent drop in oil prices since October hinders the nation’s main export and foreign-currency earner, damping demand for funding. Nigerian banks are increasingly tapping into digital technology to reach the 50 million unbanked people in a nation of 200 million, while protecting their turf from mobile-phone companies -- which have three times as many customers and are bidding to offer money transfers.

‘Weak Demand’

The company will probably achieve loan growth of 2 percent to 5 percent in 2019 after missing its target last year, Amangbo said. Customer loans declined by 8 percent in the nine months through September to 2 trillion naira ($5.5 billion).

“We don’t see a very strong growth in the loan book in 2019,” he said. “Demand is still very weak.”

The lender plans to pay off a $500 million Eurobond maturing in April and won’t issue a new one due to the limited scope for dollar lending, Amangbo said. “If the opportunity comes, we will go to the market, but now we will pay off that.”

Zenith is still trying recover past loans to the oil and gas sector, the CEO said. The industry accounted for 46 percent of non-performing loans in the third quarter of last year, and nearly a third of its total loan book.

“I don’t think there is so much appetite to lend to the oil and gas space,” he said.

Concerns over a devaluation of the naira are also weighing on lenders’ desire to finance the industry, whose survival is tied to the availability of foreign exchange for raw material imports. Deposits are also not increasing, making funding for lenders expensive in the face of cash reserve ratios of 22.5 percent.

“It takes some time for the economy to reset,” he said. “As a bank, you’ll want to be cautious.”

©2019 Bloomberg L.P.