The Central Bank of Nigeria (CBN) has disclosed that banks’ credit to the economy rose by 42.68 per cent Year-on-Year (YoY) to N87.27 trillion in August 2023 from N61.17 trillion reported in the corresponding period of 2022.
Data from the CBN’s Money and Credit Statistics showed that the total credit comprises government borrowing of N32.5 trillion and private sector borrowing of N54.76 trillion in August 2023.
Credit to government has appreciated by 55.07 per cent YoY from N20.97 trillion reported in August 2022, while credit to private increased by 36.21 per cent YoY from N54.76 trillion reported by apex bank in August 2022.
The reported N54.76trillion credit to private sector is all-time high and the figure is expected to increase further this year.
The rising credit to government and private sector is coming on the backdrop of hike in inflation rate and depreciation of Naira.
Inflation rate in Nigeria stood at 25.80 per cent in August 2023 from 20.52 per cent in August 2022, while naira against the dollar depreciated to N741.768/ Dollar at Investors & Exporters Foreign Exchange Window (9I & E FX) from N422.38 / Dollar in August 2022.
Nigeria’s economy in the first quarter of 2023 recorded political tensions, scarcity of naira and fuel shortages that slowdown business activities.
As a result of slow economic activities in Q1 2023, business conditions in the country deteriorated at the sharpest paces, while price pressures climbed further in March 2023 and at the same time, borrowing costs were increased to a new record high.
Credit growth slowed slightly in January and February 2023, from the fourth quarter of 2022 and foreign direct investment plunged in 2022, hampered by the US dollar shortage, leading some companies to cancel their expansion plans.
The economy rebound in second quarter, following a peaceful 2023 presidential elections.
THISDAY can report that credit to private sector in 2019 when the Loan-to-Deposit (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.
In 2022, however, it gained 18.64 per cent to close at N41.74 trillion in December 2022.
Analysts have attributed increased credit to the government as a factor contributing to growth in money supply, which they noted is also a major driving force behind the upward inflationary trend.
They added that increasing inflation rate might truncate its impact on the nation’s economy at large.
In a chat with THISDAY, the Vice President, Highcap Securities Limited, Mr. David Adnori stated that, “In general, an increase in the money supply drives inflation rather than the other way around. In our typical 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.”
On his part, the CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka noted that the N54.76 trillion credit to private sector as at August, 2023, still within the range of credit growth in 2022.
According to him, “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 driver of credit to real sector, he attributed the growth to 65 per cent LDR policy of the CBN, stressing that many banks complied with the directive on the minimum requirement.
He added that, “the intervention programs by the CBN in various sectors of the economy drove the increase as borrowers took advantage of the low interest rate. The minimum LDR of 65per cent and intervention programs by the CBN in various sectors have contributed to the strong economic growth witnessed in the past quarters.”
Also speaking, the Chief Operating Officer, InvestData Limited, Mr. Ambrose Omordion noted that post-covid-19 business activities contributed to N54.76 trillion credit to private sector as of August.
He expressed that the recent increase in CBN’s Monetary Policy Rate (MPR) might disrupt credit to private sector going forward, stressing that cost of production tends to witness increase and impact on local economy.
However, the surge in money supply is driven by increased borrowing by the Federal government and lending to the private sector propelled by the various intervention funds of the CBN.