Credit to Private Sector Declined by 2.1% to N74.9trn in January

Kayode Tokede 

With the uncertainty in global and domestic economies, Nigerian banks credit to the private sector dropped by 2.1 per cent  or N1.59 trillion Year-on-Year (YoY) to N74.9 trillion in January 2025.

This is according to the Central Bank of Nigeria (CBN), “Money & Credit Statistics,” which showed that credit to the private sector reached the highest peak in January 2024 at N76.48 trillion as the apex bank introduced numerous measures to enforce banks lending to the real sector. 

Credit to the private sector includes loans, trade credits and other account receivables and supports provided by banks to the private sector within a period. The credit to the private sector is a global measure of the banking sector’s balance sheet resilience and contribution to the national economic agenda.

Analysts attributed the decline to late passage of the 2025 budget by the federal government and slow start to business activities in the year. 

They  expressed optimism that private sector credit lending would rise by February 2025 as the  federal government commenced implications of the 2025 budget and clear direction in the CBN’s MPR. 

A CBN report had shown that bank credits to private sector rose to N75.96 trillion in 2024, a 27.3 per cent growth from the figure in 2023. 

Experts said banks are in position to continue to create more loans, citing aggressive growth strategies by banks and enabling regulatory environment this year. 

A recent report on capital importation into the country had also shown that banks attracted nearly two-third of capital importation into the country. Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually take more active stance in the nation’s economy.

Experts agreed that increasing private sector credit implies a major boost for the economy as there is a link between credit to the private sector and the economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in Gross Domestic Products (GDP).

Experts at Cordros Capital said the trend in credit to private sector may continue in the period ahead.

“We believe the re-enforcement of the CBN’s limit on Deposit Money Bank’s loans-to-deposits macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term,” Cordros Capital stated.

Analysts however noted that the apex bank’s intensified monetary policy tightening measures could tether the magnitude of growth going forward.

A study published by the CBN concluded that, “credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.” The study found that private sector credit increases economic growth.

The balance sheet strength of banks also determine the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.

In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.

The study found that, “Banks with strong balance sheets were better able to maintain lending during the crisis.”

According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.

“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.

Commenting, the Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the growth in credit to the private sector in 2024 could be attributable to increase in economic activity.

He however pointed out that other factors such as inflation and devaluation could moderate such increase

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the credit outlook remains cautious, calling for expansive distribution of credits across all tiers of companies and sectors.

According to him, there are major concerns in terms of distribution of credits across sectors and companies with small businesses, which contribute more to job creation and economic inclusion, not likely to benefit much.

He noted that banks tend to be wary of credit risk concerns associated with lending to small businesses and certain sectors, adding that efforts should be made to drive inclusive and stable credit access to all sectors including growth and employment elastic sectors such as agriculture, manufacturing, real estate, mining and construction among others. 

CBN Governor, Dr. Olayemi Cardoso, had  said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.

According to him, additional capital would not only provide substantial buffer for banks against potential economic challenges, but enhance Nigeria’s banks capability to support massive economic growth and play competitively globally.

Experts agreed that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions.