The services sector has maintained a top position in Nigeria’s bank credit utilisation landscape, as confirmed by recent data from the Central Bank of Nigeria (CBN).
In the second quarter of 2024, the total bank credit utilisation rose by 4.68 percent, reaching N55.71 trillion. This growth highlights the role of the services sector in absorbing bank loans, accounting for over half—51.52 percent of total credit disbursed in this period, followed closely by industry and agriculture sectors at 44.10 percent and 4.38 percent, respectively.
The rise in credit usage by the private sector points to broader economic trends. Credit to private entities grew significantly by 27.46 percent year-on-year, reaching N75.84 trillion as of September 2024. Compared to N59.50 trillion in the same month last year, the growth underscores a steady increase in banks’ support for private businesses, helping them expand and stimulate economic activities.
This expansion in credit is influenced by a broader upward trend in monetary aggregates, impacted by currency depreciation and increased credit to critical sectors of the economy. As a result, Nigeria’s broad money supply (M3) surged, driven by simultaneous increases in both net foreign assets (NFA) and net domestic assets (NDA). The CBN’s restrictive monetary policy stance led to a rise in key short-term interest rates. However, the equities market in Nigeria experienced a slowdown as investors, faced with high interest rates, shifted focus to fixed-income securities offering attractive yields. The shift caused a bearish trend in the equity markets, indicating investor caution and a preference for safer investment options amid rising interest rates.
The CBN’s data further reveal a rise in reserve money in Q2 2024, marking a 1.16 percent increase from the end of December 2023, to reach N25.02 trillion. The increase was primarily driven by a 10.82 percent rise in currency-in-circulation (CIC), which reached N4.05 trillion. Components of CIC, particularly physical notes and coins, grew to N4.03 trillion by the end of June 2024. Additionally, the eNaira—a digital currency introduced by the CBN—saw growth from N0.01 trillion in March 2024 to N0.02 trillion by June, reflecting a gradual increase in adoption.
Nigeria’s broad money supply, a vital economic indicator, expanded significantly in Q2 2024 by 27.88 percent, reaching N101.35 trillion. The rise was attributed to the increase in the money multiplier to 4.05, up from 3.94 in Q1 2024. Analysing the liability side of M3 reveals that other deposits played the most prominent role, contributing 20.00 percentage points to M3’s growth, with a 32.54 percent increase. Transferable deposits and currency outside depository corporations followed with 7.95 and 0.45 percentage points, respectively.
While deposits surged, securities other than shares experienced a steep decline, falling by 97.46 percent and slightly reducing M3 growth. This drop likely reflects a temporary shift in market dynamics, with investors increasingly favoring deposits over securities in the current economic climate.
On the asset side, M3 growth was supported by marked increases in both net foreign assets (NFA) and net domestic assets (NDA). The NFA rose sharply by 96.34 percent to N18.33 trillion, contributing 11.35 percentage points to M3 growth, predominantly due to a revaluation effect. The NDA also saw a substantial rise of 18.73 percent, reaching N83.01 trillion, contributing a significant 16.53 percentage points to M3 growth.
The increase in NDA is largely due to a notable rise in claims on the private sector, which grew by 27.38 percent, contributing 14.29 percentage points to M3. Claims on public non-financial corporations also increased by 12.55 percent, contributing an additional 0.50 percentage point. Conversely, net claims on the federal l government decreased by 16.37 percent. This decline was the result of a 27.69 percent increase in liabilities to the federal government, which outweighed the 1.30 percent growth in claims on the government.
The service sector’s leading role in Nigeria’s bank credit utilisation underscores its influence on the economy, as it consistently draws significant bank funding. The data further indicate that the CBN’s restrictive monetary policies are impacting interest rates, investment behaviors, and overall money supply in response to a dynamic economic environment. These patterns not only highlight the resilience of the services sector but also point to the importance of strategic financial policies in shaping Nigeria’s economic future amidst global and domestic economic shifts.
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