Amidst CBN Directive to DMBs, Credit to Private Sector Up N4.69trn to N39.87trn

Kayode Tokede 

Following the Central Bank of Nigeria (CBN) mandate to Deposit Money Banks (DMBs) to improve lending to the real sector of the nation’s economy, credit to private sector has so far in 2022 added N4.69trillion to reach N39.87 trillion in July.

According to the latest money and credit statistics released by central bank, credit to private sector reached a record N39.87 trillion in July 2022, a significantly 3.6 per cent month-on-month (MoM) increase from N38.46trillion reported in June.

The CBN numbers revealed that credit to private sector commenced 2022 at N35.18 trillion and increased by N4.69 trillion or 13.32 per cent in its Year-till-Date (YtD) growth to N39.87 trillion as of July 2022.

THISDAY analysis of the numbers revealed that credit to the private sector has gained 21.33 per cent Year-on-Year (YoY) from N32.86 trillion reported July 2021.

Further analysis revealed that all sectors of the Nigerian economy have benefitted from the increased lending with the top three being Oil & Gas, Manufacturing, and General.

The CBN data also revealed that credit to government has been on steady increase and hit N20.09 trillion as at July 2022 an increase of 11.29 per cent and 42.36 per cent in MoM and YTD respectively.

Commenting on the impact of sharp increase in credit to the private sector on job creation and economy expansion, analysts said double-digit inflation, among other challenges have diminished the gains on businesses.

Analyst at PAC Holdings, Mr. Wole Adeyeye in a chat with THISDAY explained that, “The increase in credit to private sector is not expected to create more jobs as businesses are facing high cost of inputs, mainly driven by high inflation.

“Nigeria’s inflation rate hit 17-year high at 19.64 per cent in July 2022. This shows that businesses will have to borrow more to produce (most times, below the maximum production level). Demand-pull inflation may create more jobs but unfortunately, Nigeria is witnessing cost-push inflation at the moment.”

On his part, CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka said, “The 3.67 per cent MoM growth in credit to private sector in July 2022 was a clear demonstration of how inflation has affected nominal demand for Naira by private sector businesses, given continuing rise in input cost and the usual burden of imported inflation.

“Since this nature of demand for money may not necessarily translate to improved productivity, it follows, therefore, that economy may not also benefit in terms of additional jobs or output growth. This is just an evidence of unstable state of macroeconomic environment in Nigeria.”

Chief Operating Officer, InvestData Limited, Mr. Ambrose Omordion said that post-covid-19 business activities contributed to sharp increase in credit to private sector as of July, stressing that the recent increase in CBN’s Monetary Policy Rate (MPR) and hike in inflation rate might disrupt credit to private sector.

He stressed that cost of production is expected to witness increase and impact on local economy.

In her personal statement at the last Monetary Policy Committee (MPC) meeting, Deputy Governor, Financial System Stability, CBN, Aisha Ahmad said the global economic prospects remain confronted with significant headwinds and a deteriorating outlook, largely driven by spillover effects from the Russia / Ukraine conflict amidst lingering impacts of the COVID-19 pandemic.

According to her, “Rising global inflation as a result, has led to monetary tightening by advanced and emerging market central banks, even as they struggle to  preserve the fragile recovery. Similarly for Nigeria, containing inflation in line with the price stability mandate is the appropriate monetary policy priority in my opinion.

“It will be prudent however to be cautious in raising the policy rate, recognizing underlying structural factors driving price developments and the potentially negative effect of a sudden and significant rate hike on credit expansion, financial system stability and economic growth.”

Also, Professor of Economics, University of Ibadan and member of the MPC, Festus Adenikinju in his personal statement after the May 2022 meeting had disclosed that governments rank as number four largest beneficiary of total credit.

According to him, “In fact, in terms of sectors that recorded the highest increase in gross credit between end-May 2019 and end-April 2022, governments are in the top three, after manufacturing and General (retail and personal loans).”

He added that the rising share of governments in total credit to the economy by the banking system suggests crowding out effects of private sector borrowings. ‘

He urged governments to divert to non-debt means of funding its activities, advocating that, “Government must grow its revenue base, reduce waivers to economic agents, plug leakages and wastes, and address the wasteful petrol subsidy system. The huge energy deficit must be urgently addressed.”

Meanwhile, as credit to private sector and government recorded increase in July, money supply in the economy witnessed a decline outcome.

According to CBN numbers, money supply in the economy dropped by 0.53 per cent MoM to N48.26 trillion in July from N48.51 trillion reported in June 2022.

Money supply had hit N48.58 trillion in May 2022, driven by increased borrowing by the federal government and commercial banks’ lending to the private sector propelled by the LDR policy of the CBN.

The statistics revealed that money supply (M3) grew by 21.40 per cent YoY to N48.26 trillion in July 2022 from N39.75 trillion reported July 2021.

Money supply is defined as total stock of money in an economy comprising currency (notes and coins) and deposit with commercial banks in Nigeria and it consists of broad money (M2) and narrow money (M1).

Further analysis of money supply also showed that major components M2 and M1 recorded decline in July 2022.

According to the CBN data, M1, dropped by 0.92 per cent MoM to N20.37 trillion as at July 2022 from N20.56 trillion ending May 2021, while M2 depreciated by 0.53 per cent to N48.26 trillion MoM from N48.51 trillion as of June 2022.

In addition, currency in circulation dropped by N88.26 billion from N3.33 trillion as at the end of June to N3.24 trillion as of the end of July.