Analysis of Supply Side Factors Affecting Bank Financing of Non-Oil Exports in Nigeria

Authors: Sama’ila Idi Ningi, Abubakar Yusuf Dutse

Abstract:

The banking sector poses a lot of problems in Nigeria in general and the non-oil export sector in particular. The banks' lack effectiveness in handling small, medium or long-term credit risk (lack of training of loan officers, lack of information on borrowers and absence of a reliable credit registry) results in non-oil exporters being burdened with high requirements, such as up to three years of financial statements, enough collateral to cover both the loan principal and interest (including a cash deposit that may be up to 30% of the loans' net present value), and to provide every detail of the international trade transaction in question. The stated problems triggered this research. Consequently, information on bank financing of non-oil exports was collected from 100 respondents from the 20 Deposit Money Banks (DMBs) in Nigeria. The data was analysed by the use of descriptive statistics correlation and regression. It is found that, Nigerian banks are participants in the financing of non-oil exports. Despite their participation, the rate of interest for credit extended to non-oil export is usually high, ranging between 15-20%. Small and medium sized non-oil export businesses lack the credit history for banks to judge them as reputable. Banks also consider the non-oil export sector very risky for investment. The banks actually do grant less credit than the exporters may require and therefore are not properly funded by banks. Banks grant very low volume of foreign currency loan in addition to, unfavorable exchange rate at which Naira is exchanged to the Dollar and other currencies in the country. This makes importation of inputs costly and negatively impacted on the non-oil export performance in Nigeria.

Keywords: Supply Side Factors, Bank Financing, Non-Oil Exports.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1087790

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