Nigerian banking sector continued to play its intermediary role by giving credit to the real sector of the economy to boost growth.
Growth in credit to the private sector reflected the loan-to-deposit ratio (LDR) policy and other policies to increase private sector credit.
The Central Bank of Nigeria (CBN) in October 2019 raised the Loan to Deposit Ratio of banks to 65 per cent, after the September 30 deadline given to the banks to meet its 60 per cent directive. However, the regulator later extended the deadline of the 65 percent LDR to March 31, 2020.
Congruent with the 13.4 per cent growth in domestic claims, net claims on the Federal Government grew by 13.6 percen in the fourth quarter of 2020, in contrast to a decline of 4.1 per cent at the end of the preceding quarter according to the CBN’S report.
This reflected direct loans to the Federal Government by the CBN. Similarly, credit to other sectors grew by 13.3 per cent to N30.16 trillion at the end of December 2020, compared with 11.8 per cent at the end of the preceding quarter. The sector’s positive performance was dominated by the (productive) private sector with growth rate of 15.4 per cent to N18.74 trillion, compared with 13.9 per cent at the end of September 2020.
The development was due to an uptick in economic activities, following the CBN’S support to boost economic growth in the wake of the second wave of the COVID-19 pandemic, the impact of ‘ENDSARS’ protest and economic recession.
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Sectoral credit utilisation by ‘other’ sectors of the economy grew by 16.5 per cent to N20.37 trillion at the end of December 2020, compared with 10.7 per cent at the end of September 2020.
A breakdown of the credit showed that the industrial and services sectors contributed 37.2 per cent and 37.6 per cent, respectively, compared with 37.2 per cent and 38.4 per cent in September 2020. The agricultural and government sectors accounted for 5.2 per cent and 8.7 per cent, respectively, at the end of December 2020, compared with their respective levels of 4.8 per cent and 8.3 per cent at the end of September 2020.
Consumer credit outstanding, at N1.66 trillion at the end of December 2020, rose by 9.9 per cent and 17.7 per cent above the levels at the end of the preceding quarter and the corresponding period of 2019, respectively. Also, consumer credit as a percentage of private sector credit increased to 8.9 per cent at the end of December 2020 from 8.1 per cent at the end of September 2020. The growth in consumer credit reflected the expansionary monetary policy stance of the CBN, as well as the effectiveness of the loan-to-deposit ratio policy, aimed at reflating the economy.
A breakdown of consumer loans showed that retail loans rose by 1.8 percentage points, over the level at the end of the preceding quarter, while personal loans dipped by 1.8 percentage points. Economic agents continued to express confidence in the banking system in the fourth quarter of 2020, as shown by demand for bank deposits. There was a 10.7 per cent growth in broad monetary liabilities, accounted for by the significant growth in quasi money, currency outside depository corporations and transferable deposits, the report noted.
