Credit to Private Sector Adds N9.03trn in 3 Years, Reached All-time High in 2021

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Kayode Tokede

On the backdrop of the announced minimum Loan-to-Deposit Ratio (LDR) of 60 per cent by the Central bank of Nigeria (CBN), credit to private sector between 2019 and 2021 appreciated by N9.03trillion, THISDAY can report.

The apex bank in July 2019, announced an increase in the required minimum LDR to 60 per cent effective end of September 2019.

Upon review of the results of the monetary policy, the CBN decided to raise the ratio higher to 65 per cent which banks were expected to comply with by the end of December the same year.

The CBN in its latest money and credit statistics revealed that credit to private sector reached N35.73trillion in 2021, an all-time high in banks lending to private sector.

The apex bank had reported N26.65trillion credit to private sector in 2019 and with the latest figure of N35.73trillion, it means credit to private sector has added N9.03 trillion in the last three years.

THISDAY can report that credit to private sector in 2019 when the LDR policy was introduced, gained N3.75trillion or 16.33 per cent to close at N26.69trillion from N22.95trillion it opened in 2019.

In 2020, credit to private sector added N3.5trillion or 13.12 per cent to close December 2020 at N30.15trillion from N26.65trillion recorded in January 2020.

However, in the full year of 2021, credit to private sector rose by N5.08trillion or 16.57 per cent close 2021 at N35.38trillion from N30.65trillion reported by the CBN in January 2021.

The Deputy Governor, Financial System Stability, CBN, Aisha Ahmad, in her personal statement at the end of Monetary Policy Meeting of November 2021 noted that improvements in the macro economy was propelled by a resilient financial system which channelled significant credit to support growth enhancing sectors such as agriculture, manufacturing and general commerce, as well as individuals and households.

According to her, “Total credit increased by N4.10 trillion (21.12 per cent) between end-October 2020 and end-October 2021, due largely to the increase in the industry funding base and the CBN’s LDR policy, which has encouraged banks to increase lending to the real sector of the economy. This credit to the real sector has been critical for the economic.”

An Economist & Private Sector Advocate, Dr Muda Yusuf had explained to THISDAY that the apex bank has no doubt been quite bullish about lending to the real sector and the Small and Mid-size Enterprises (SMEs), stressing that there are various intervention funds- the LDR and other credit boosting measures by the apex bank.

He explained further that: “However, there are concerns about the quality of the loan assets, especially those disbursed outside the framework of the deposit money banks.

“There are reports of high default rates which have implications for the sustainability of such interventions. There are also concerns about the risk of lending to the targeted growth sectors of the economy. This often results in the reluctance of the deposit money banks to lend to those sectors as they are responsible for bearing the credit risks.

“Many banks have suffered the shocks of direct debits for their failure to meet the mandatory lending thresholds. Therefore, policy makers should come up with strategies of derisking the real sector and the SMEs space. These are critical for boosting credit growth to the growth sectors of the economy.”

Commenting, the Vice President, Highcap Securities Limited, Mr. David Adnori noted that recovery in the economy enhanced banks financing critical sectors.

He noted that: “The steady increase in the economy boost banks lending to real sector. Secondly, In December, there was demand for goods and services The growth of banks lending to real sector was as a result of private sector borrowing from banks to meet their daily obligations.”

In addition, Analyst at PAC Holdings, Mr. Wole Adeyeye, said: “The LDR of 65 per cent played a significant role in the economic activities in the country as it encouraged higher loans from banks to the private sector. The lending helped most companies to meet the higher demand in 2021.

“For instance, 40 out of the 46 economic activities in the nation’s GDP basket recorded positive growth rate in the third quarter of 2021 (compared with 18 out or 46 economic activities in the third quarter of 2020). This resulted in positive economic growth in the first three quarters of 2021.”

From the same data, the CBN disclosed that currency in circulation closed 2021 at N3.33trillion from N2.83trillion it opened in the year under review.

Currency in circulation had historical hits N3trillion mark in November 2021 as bank customers withdraw physical cash amid festive period.

Finance expert, Mr Rotimi Fakeyejo explained that excess liquidity in the “Ber” months contributed to growth in currency in circulation, stressing that Nigerians are finding it difficult to embrace the cashless policy of the CBN.

According to him: “The market currently is awash with excess liquidity and it is due to season of the year. CBN interventions in the foreign exchange and other key sectors of the nation’s economy are factors contributing to hike in currency in circulation.”

He explained further that Nigeria is still more of a cash economy, facing infrastructure challenges.

“Someone can blame infrastructure deficit to CBN’s good intention of making Nigeria a cashless society. The infrastructure that will make the cashless policy work is missing compared to what we have in Kenya,” he added.

The apex bank had disclosed that currency in circulation dropped to N2.78trillion in August from N2.81trillion in July.

In June, it was N2.74trillion and in May, N2.79trillio. It stood at N2.79trillion in April and N2.8trillion in March.

Adeyeye said that a double-digit inflation rate is responsible for hike in currency in circulation in 2021.

He also expressed that most banks in Nigeria showed a significant rise in ATM withdrawals and this could be linked to increase in currency in circulation According to him: “Many things may have contributed N3.4trillion in currency in circulation in 2021. The double-digit inflation rate as prices of goods and services increased significantly in the market, hence people need to spend more money.

“Also, the persistent depreciation of Naira in the foreign exchange market shows that people need more Naira to exchange for one US dollar. Also, data from most banks in Nigeria showed significant rise in ATM withdrawals and this could be linked to increase in currency in circulation. In addition, the increase in domestic credit may have contributed to higher currency in circulation.”

Adnori in his part attributed hike in currency in circulation to money created by the CBN to finance federal government budget and intervention by the apex bank in some key sectors.
In his words: “In my own view, the money creation by CBN through lending to banks as to assist them finance some key projects in the economy might increase physical currency.”