Other financial institutions contribute 10.62% to banking sector credit

A report from the Central Bank of Nigeria (CBN) showed that Other Financial Institutions (OFIs) contributed significantly to aggregate consumer’s credit.

Consequently, OFIs granted 22.39 million facilities to 9.23 million loan beneficiaries out of which 69.26 thousand were corporate consumers.

Overall, OFIs contributed an additional N2.79 trillion or 10.62 percent to banking sector credit in the past one year.

Festus Adenikinju, member of the Monetary Policy Committee (MPC) who gave the breakdown in his personal statement at the last meeting in November 2021, said the banking sector stability review showed that the banking sector remains strong, resilient, and very stable.

Financial Soundness Indicators, such as, Non-Performing Loans (NPL) ratio, Capital Adequacy Ratio and Liquidity Ratio were all close to their respective prudential requirements and in many cases, not too far, from those of comparator countries.

All measures of industry size, bank credit, assets and deposits were higher than the corresponding values in October 2020. Of particular interest is the growth in bank industry credit, which rose from N19.39 trillion in October 2020 to N23.49 trillion in October 2021.

The Development Financing Report showed the aggregate and sectoral decomposition of Central Bank interventions in the economy. The sectoral breakdown, as well as geopolitical breakdown of the intervention, showed that core sectors of the economy and Nigerians from different geopolitical zones have benefitted from the intervention funds.

Nigerians, who otherwise would not have been able to access credit from the formal market have been able to benefit from the intervention funds. The CBN interventions have boosted both the demand and real sides of the economy. Boosting the demand side is extremely critical given the size of consumption in the aggregate GDP as well as the huge compression on real income caused by COVID-19. The increase in aggregate supply also has the capacity to increase GDP as well as lower general price level.

“The CBN must continue to explore ways of further de-risking the critical sectors of the economy to enable the deposit money banks to lend to them. As CBN interventions cannot continue in the long term, domestic banks must take on the responsibility of supporting households’ credit and the Micro Small and Medium Enterprises (MSMEs)”, Adenikinju said.

Read also: CBN’s interventions drive banks’ credit to private sector growth

Improvements in the macroeconomy were also propelled by a resilient financial system that channelled significant credit to support growth-enhancing sectors such as agriculture, manufacturing and general commerce, as well as individuals and households, Aisha Ahmad, deputy governor, financial system stability, CBN, said.

She said total credit increased by N4.10 trillion (21.12 per cent) between end-October 2020 and end-October 2021, due largely to the increase in the industry funding base and the CBN’s Loans to Deposit Ratio policy, which has encouraged banks to increase lending to the real sector of the economy. This credit to the real sector has been critical for economic recovery.

According to her, Capital Adequacy Ratio (CAR) and Liquidity ratio remained strong at 15.2 per cent and 41.2 per cent respectively, in October 2021, while NPLs ratio declined to 5.3 per cent in the same period from 5.7 per cent in October 2020 reflecting proactive regulatory oversight and strong industry risk management practices.

Positive domestic GDP growth prospects should further strengthen asset quality, solvency ratios and sustain financial system stability,” she said.

Furthermore, Ahmad said digital innovations such as the CBN’s historic pioneering launch of the e-naira last month, is expected to strengthen monetary policy management and eventually foster financial inclusion.

Robert Asogwa, member of the MPC, the banking sector itself remains stable and resilient, just like the position at the MPC meeting in September despite the fact that the profitability indicators were unchanged between September and October.