The private sector is still being crowded out in lending by banks in spite of the marginal reduction in the Monetary Policy Rate (MPR) by the Central Bank of Nigeria’s (CBN).
The CBN’s depository corporations survey, released recently, showed 3.22 percent month-on-month increase in Broad Money to N34.79 trillion in February 2019, from N33.72 trillion in January 2019. This resulted from an 11.80 percent m-o-m rise in Net Domestic Assets (NDA) to N17.77 trillion accompanied by a decrease of 4.44 percent m-o-m in Net Foreign Assets (NFA) to N17.02 trillion. On domestic asset creation, the increase in NDA resulted from an m-o-m rise of 6.57 percent in Net Domestic Credit (NDC) to N30.52 trillion, but was offset by a 0.04 percent m-o-m rise in Other Liabilities (net) to N12.74 trillion.
Further breakdown of the NDC showed an 11.42 percent m-o-m increase in Credit to the Government to N6.35 trillion and an increase of 5.37 percent in Credit to the Private sector to N24.16 trillion.
On the liabilities side, 3.22 percent m-o-m rise in Broad Money Supply was chiefly driven by 18.83 percent m-o-m increase in treasury bills held by money holding sector to N8.23 trillion but was offset by 0.98 percent m-o-m decrease in Narrow Money to N11.03 trillion (as Demand Deposits which fell by 2.22 percent to N9.19 trillion offset the effect of currency outside banks which rose by 5.70 percent to N1.84 trillion) and a 0.74 percent m-o-m moderation in Quasi Money (near maturing short term financial instruments) to N15.50 trillion. Reserve Money (Base Money) decreased m-o-m by 4.30 percent to N7.17 trillion as Bank reserves declined m-o-m by 8.47 percent to N4.58 trillion despite a 4.75 percent m-o-m rise in currency in circulation to N4.46 trillion.
Meanwhile, analysis of the Q1 2019 Credit Conditions Survey released by CBN showed that availability of secured and unsecured credit to households as well as credit to corporate firms increased in Q1 2019 amid lenders’ optimism for better economy which boosted their risk appetite. This is expected to continue in Q2 2019.
However, demand for secured households credit decreased in Q1 2019 as lenders tightened the credit scoring criteria. Nevertheless, lenders still reported increased demand for corporate credit from all firm sizes in the quarter under review, which was expected to continue into the next quarter, given the lower default rates printed by corporates in Q1 2019.
“We note the 5.37 percent increase in credit to the private sector, which was fairly commendable. However, the higher rate of increase in credit to Government showed that despite the moderation in Monetary Policy Rate (MPR) to 13.50 percent and the declining interest rate environment, the private sector still experienced crowding out effect as Deposit Money Banks continued to play safe despite the recorded improvement in loan performance”, analysts at Cowry Asset Management Limited said.
