Banks’ credit growth to private sector slows by 5% in February

The rate of increase in deposit money banks’ credit to the private sector slowed by 5 percent in February 2024 from 22.00 percent in January 2024 according to the Central Bank of Nigeria (CBN).

Data from the CBN showed that credit to the private sector grew on a slowing rate to N80.86 trillion as of February 2024 compared to N76.29 trillion in January 2024.

The slow pace of credit to the private sector followed monetary policy tightening by the CBN, analysts have said. The apex bank on Tuesday after a two-day rate decision meeting, doubled down its monetary policy stance by 200 basis points to 24.75 percent.

Olayemi Cardoso, governor of the CBN, who briefed journalists on the outcome of the meeting, said the committee voted to raise the MPR by 200bps to 24.75 percent, change the asymmetric corridor from +100/-700 to +100/-300 around the MPR, retain the Cash Reserve Ratio (CRR) of commercial banks at 45.00 percent, adjust the CRR of Merchant banks from 10 percent to 14 percent and hold the liquidity ratio constant at 30.00 percent

The Monetary Policy Committee (MPC) convened on February 26 and 27, 2024, and unanimously increased the MPR by 400 basis points to 22.75 percent from 18.75 percent, the asymmetric corridor surrounding the MPR was adjusted to +100/-700 basis points from +100/-300, the Cash Reserve Ratio surged from 32.5 percent to 45.0 percent, while the Liquidity Ratio remained steady at 30.0 percent.

The CBN data also revealed that currency in circulation rose by 1.09 percent to N3.69 trillion in February 2024 from N3.65 trillion in January 2024. Credit to the government reduced by 6.22 percent to N33.92 trillion in February 2024 compared to N36.17 trillion.

“The CBN and even the government has said that they are going to reduce the ways and means, which is government borrowing from the CBN by complying with the CBN Act. I am sure they are already doing that”, Muda Yusuf, CEO of the Promotion of Private Enterprise, said.

Secondly, he said, their revenue is also improving because of the subsidy removal and foreign exchange convergence. The revenue of the Federal, State and the local government is increasing. If their revenue is increasing the need to borrow will also be reduced.

In his personal statement, Bala M. Bello, member of the MPC said borrowing costs are also expected to rise, possibly constricting loan growth in view of the positive correlation between market lending rates and the MPR, with adverse implications for asset quality.

“Although staff reports presented at the meeting showed a resilient financial system with prudential ratios within required levels and satisfactory stress test results, preserving financial system stability as monetary policy contracts remains vital. The CBN’s vigilance and proactive measures, such as the proposed recapitalization of commercial banks, are, therefore, germane,” he said.

Emem Usoro, a member of the MPC said, the financial system remains resilient as reflected by financial soundness indicators which remained within regulatory limits. In addition, recent reports from international rating agencies such as Fitch, Moody’s, and S&P, have upgraded Nigeria’s ratings from stable to positive.

Lamido Abubakar Yuguda, a member of the MPC said in his personal statement that the banking system remained sound over the review period with capital adequacy ratio was above 10 percent and non-performing loans (NPLs) of 4.15 percent. Liquidity ratio was 42.83 percent in January 2024, significantly above the regulatory minimum liquidity ratio requirement of 30 percent and 20 percent for commercial and merchant banks, respectively.

Nigerian banks are currently grappling with a challenging economic issue, compounded by a double whammy of liquidity squeeze. This predicament arises from a substantial increase in the Monetary Policy Rate (MPR) and a simultaneous rise in the Cash Reserve Ratio (CRR).