Banks credit to private sector declines by 11.93% in March

The loan granted by commercial banks to the private sector declined by 11.93 percent in March 2024, following the liquidity tightening of the Central Bank of Nigeria (CBN).

Data from the CBN showed that credit to the private sector dropped to N71.21 trillion at the end of March 2024 compared to the level of N80.86 trillion in February 2024.

On a quarter-on-quarter basis, banks’ private sector credit also decreased by 6.66 percent from N76.29 trillion in January 2024.

As part of its tightening measures to rein in inflation, the CBN, in one month raised its benchmark interest rate, known as the Monetary Policy Rate (MPR) by 600 basis points to 24.75 percent in March 2024 from 18.75 percent in July 2023.

Nigeria’s inflation rate increased to 33.2 percent for the month of March 2024 according to the latest data from the National Bureau of Statistics (NBS).

The CBN also increased the Cash Reserve Ratio (CRR) from 32.5 percent to 45 percent, adjusting the assymetric corridor around the MPR to +100/-700 from +100/-300 basis points, and retained the liquidity ratio (LR) at 30 percent.

In its recent assessment report on Nigeria, the International Monetary Fund (IMF) has advised the Central Bank to consider increasing Open Market Operations (OMO) bills by as much as N2 trillion within the next year. The recommendation aims to address the issue of excess liquidity in the economy.

The IMF suggests that the CBN should persist in withdrawing surplus liquidity using short-term instruments such as OMOs or repos. Specifically, the initial target is to eliminate the remaining 800 billion naira in excess reserves, with a further goal of up to 2 trillion naira over the course of the next 12 months.

These recommendations were outlined in the IMF’s Post Financing Assessment Discussion and Staff Report of Nigeria, which was recently published by the Fund.

“The Central Bank recently responded to the crisis by further tightening. This coupled with efforts to reduce liquidity and discourage crypto speculations have seen the naira gradually regaining strength. In spite of this, inflation has not slowed down possibly due to the associated policy transmission time lag, rising food prices and the fact that it is difficult to gauge the correlation between money supply and prices in Nigeria. This is in addition to the erstwhile limited synergy, which is however gradually improving, between the monetary and fiscal institutions to pursue comprehensive macroeconomic policies,” Murtala Sabo Sagagi, member of the Monetary Policy Committee (MPC), said.

Lamido Abubakar Yuguda, member of the MPC, said in his personal statement that the banking sector has remained safe and sound with the key indicators within the prudential benchmarks. The capital adequacy ratio was above the 10 per cent mark in February. Non-performing loans (NPLs) ratio at 4.5 percent was up marginally by 0.3 percentage point compared to January 2024 but remained below the prudential benchmark of 5.0 per cent. The Industry Liquidity Ratio (LR) was 42.7 percent, exceeding the minimum regulatory requirement of 30.0 per cent and was higher than the 42.1 percent recorded in the previous month.

In his personal statement, Muhammad Sani Abdullahi, said the Bank (CBN) has remained focused on ensuring that the banking system remains stable due to its key role, not only in the transmission mechanism of monetary 30 policy, but also in the overall stability of the macroeconomy. Thus, using extant regulatory and macroprudential measures, the Bank has continued to ensure that the Nigerian banking sector remains safe, sound, and resilient. Given the challenges of the operating environment, strengthening the Bank’s surveillance and risk management framework, and plans to recapitalize deposit money banks to support the FGN’s one-trillion-dollar economy agenda by 2030, remain key to sustaining banking system stability.