The Buhari administration has been advised to quickly focus on addressing issues of exchange rate stability and credit availability in the financial system. Standard Chartered Bank’s analysts, Razia Khan and Sarah Baynton- Gled, made this call in a note made availability to New Telegraph.
The analysts, who hinged their counsel on the contents of the latest Standard Chartered MNI Business Sentiment indicator (BSI), noted that although the successful transition to a new ad-ministration had raised hopes that a democracy dividend appears evident in Nigeria, the progress was going to be gradual. According to the analysts, “Our BSI suggests two areas of immediate focus: The ‘effect of the Naira exchange rate’ and ‘Credit availability’ current conditions indicators both reached series-lows in May.
More Nigerian businesses than ever before are reporting that FX market conditions are problematic. However, the sharp contrast with future expectations, which rebounded sharply (to 56.9) to levels not seen since last June, reveals that many expect matters to be resolved in the near term.
“The ‘availability of credit indicator’ paints a gloomier picture. With current conditions at only 40.2, businesses reporting problems obtaining credit outnumber those responding more positively. Even future expectations for credit availability, at 51.8, just make it above the key breakeven level.
The combination of weaker oil prices and FX depreciation has weakened the resilience of Nigeria’s banking sector, with many banks adopting a more conservative approach to credit growth. A plan to gradually unlock bank lending may be required, if economic recovery hopes are to be realised.”
The researchers stated, “The Standard Chartered MNI Business Sentiment indicator (BSI) increased 0.7% m/m to 61.4 in May. This follows a flat headline BSI indicator of 61.0 between March and April. Nigeria’s presidential and parliamentary elections were held on 29 March, with gubernatorial elections on 11 April.
Ahead of the elections, activity in Nigeria slowed meaningfully.” Besides, the experts noted, “The key message from the May BSI is that perceptions of current business conditions are improving, but only very gradually. Future expectations are much more robust.
The three-month BSI increased to 61.1 from 60.0 in the three months to April. Only 6 out of the 15 current conditions indicators improved in May, and mostly only by a small amount. In contrast, 5 out of 15 future expectations indicators improved in May (one indicator – new orders – was unchanged), each to a series-high.” According to the lender, the BSI for Nigeria is a diffusion index, summarising in a single number how optimistic businesses feel about current and future economic conditions.
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