Kayode Tokede
With banks increasing interventions in the real sectors, credit to private sector increased to N41.58 trillion in November 2022 from N40.84 trillion in October, the latest Central Bank of Nigeria (CBN) “Money and Credit” statistics has revealed.
The reported N41.58trillion credit to private sector in November is the highest in the banking industry.
Analysts have attributed the growth to the 65 Loan-to-Deposit (LDR) policy of the CBN that mandated banks to lend to real sectors of the nation’s economy.
Despite the policy, some Tier-1 banks as of nine months of 2022 have failed to meet the CBN requitement of 65 per cent LDR.
For example, Zenith Bank Plc in nine months of 2022 reported 50.4 per cent LDR, while FBN Holdings announced 56.6 per cent LDR as of September 30, 2022.
Notably, the likes of Sterling Bank Plc, Union Bank of Nigeria Plc, FCMB Group Plc, among other Tier-2 banks reported stronger LDR in the period under review.
However, findings by THISDAY revealed that credit to private sector in 11 months of 2022 added N6.4trillion with significant growth in credit to manufacturing, general commerce, and oil & gas sectors.
According to the statistics, credit to private sector opened 2022 at N35.18 trillion in January and crossed the N40trillion mark in August 2022 amid hike in inflation rate and severe business environment.
Commenting, Vice president, Highcap securities limited, Mr. David Adnori, stated that the N6.4trillion growth in credit to private sector in 11 months demonstrated how double-digit inflation rate has affected nominal demand for Naira by private sector businesses, given continuing rise in input cost and the usual burden of imported inflation.
He explained further that, “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 evidence of the unstable state of the macroeconomic environment in Nigeria.”
Also speaking, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka stated that the growth in credit to private sector is an indication of a moderate credit extension to the private sector of the economy, in consonance with low absorptive capacity of the economy itself, and as possibly programmed by CBN, given mirage of problems bedevilling the Nigerian economy.
He added, “An economy with low productivity and total reliance on import must guide its credit expansion, in order not to put too much pressure on a faulty exchange rate management. Further credit expansion in the midst of poor monetary and fiscal coordination, could spell doom for the economy. This is one of the reasons our economy is not doing well.”
Commenting on the increase in credit to private sector, Deputy Governor, CBN, Aisha Ahmad, who also a member of the Monetary Policy Committee (MPC) in her personal statement at the meeting said the continued credit expansion particularly to output enhancing sectors is expected to further support economic activities.
She stated that the sustained regulatory vigilance is required to mitigate any potential crystallization of credit risk in the financial system in view of lingering macroeconomic risks.
The statistics also revealed that currency in circulation dropped by N134.53billion to N3.16 trillion in November from N3.298 trillion in October.
The decline, according to analysts is on the back drop of CBN excess mopping of ideal liquidity in the banking system.
CBN at its MPC meeting in September and November maintained Cash Reserve Ratio (CRR) of deposit money banks at 32.5 per cent from 27.5 per cent.
CRR is the proportion of commercial banks’ deposits that is not allowed to be lent out or invested by banks. At the current rate, the CBN wants banks to keep N325 out of every N1,000 deposit mobilised from customers.
The statistics by CBN showed that credit to the government dropped to N22.639trillion in November from N22.645trillion in October.
Analysts explained that banks shun lending to the government over 2023 political tension, maintaining that the decline commenced since September 2022.
Banks credit to government has appreciated by 51.9per cent in its Year-till-Date (YtD) performance.
Credit to the government had steadily been on the rise since the opening of 2022 and crossed the N20trillion mark in July.
In addition, Money Supply (M2) increased to N51.78trillion in November from N50.63trillion reported by CBN in October.
Adnori explained that, “In general, an increase in the money supply drives inflation. In Nigeria’s case, money supply growth far outstrips economic growth which is a typical condition for stoking inflation.
“In terms of inflation, the majority of the inflationary pressure we are experiencing is supply-side driven, as a result of issues like insecurity, poor infrastructure, insufficient logistics, and cost push factors from the external environment, such as the Russian-Ukraine conflict.
“As a result, I would ascribe a higher percentage (about 65-70per cent) of the money supply growth to inflation. I believe the balance is due to a higher credit growth to the economy, notably to the government.”
