Banks maintain steady rise in credit to private sector

Nigerian banks have continued to maintain steady increases in credit to the private sector of the economy as seen in the May 2022 numbers, where it rose by 1.35 percent to N38.19 trillion compared to N37.68 trillion in April this year, data from the Central Bank of Nigeria (CBN).

“Expansion of credit to the private sector is a positive development which if sustained would stimulate economic growth and create jobs,” said Taiwo Oyedele, head of tax and corporate advisory services at PwC.

The data showed that in April 2022, net domestic credit to the private sector grew by 16 percent year-on-year to N37.1 trillion.

April’s figure for private sector credit extension implies a credit extension/ Gross Domestic Product (GDP) ratio of 21.4 percent, slightly lower than the sub-Saharan Africa average of about 37.9 percent, but significantly below the global average of 147.9 percent according to World Bank data.

According to FBNQuest, the data covers lending by the entire banking system and not merely the deposit money banks (DMBs), which represent around 69 percent of the total figure.

It also covers lending by the CBN and state-owned development banks, such as the Bank of Industry, and smaller credit extension by other banks, such as micro-finance banks and non-interest banks.

“Although the growth rate is in double-digits and ahead of nominal GDP growth, Nigeria’s credit penetration still lags behind peers on the basis of standardized metrics,” analysts at FBNQuest said.

According to the Monetary Policy Committee’s (MPC) May communiqué, the CBN’s cumulative disbursements under its credit intervention programmes, which cover a variety of sectors such as agriculture, manufacturing, healthcare, and power, totalled over N6.0 trillion as of May 2022.

Read also: CBN’s renewed liquidity squeeze strains interbank market

The MPC was convinced that various measures being implemented were helping, not only in boosting output growth, but also in moderating inflation. The MPC therefore, enjoyed management of the CBN to continue to use its development finance tools to accelerate output growth, which would also help in boosting manufacturing output that would ultimately aid moderation in prices.

It also requested management to continue its use of administrative measures, including discretionary tools at its disposal through Cash Reserve Ratio (CRR) to control money supply in the economy.

The broader data series show that credit to the government grew by about 35 percent y/y, matching the strong growth seen in the previous month, and surpassing the private sector credit expansion growth.

“We expect to see strong expansion in lending to the government over the next few months, due to dire fiscal positions of most state governments,” the analysts said.

Aisha Ahmad, deputy director, financial systems stability Directorate of the CBN, said in her personal statement of March 2022 MPC meeting that the financial system remains resilient and continues to provide significant support for the domestic recovery. Data provided by Central Bank staff showed stability in broad financial soundness indicators and sustained improvement in asset quality, alongside growing credit to the private sector.

Banks Capital Adequacy Ratio (CAR) as at February 2022 was robust at 14.40 per cent. Industry liquidity was also strong at 43.5 per cent over the same period while the non-performing loans ratio declined further to 4.8 per cent in February 2022, from 4.94 per cent in December 2021. This reflects the case-by-case review of regulatory forbearance, effects of the Global Standing Instruction (GSI) policy, and sound industry risk management practices.

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