Lending to private sector sees double-digit surge on CBN’s drive

Nigeria’s economy is finding an increasing capital it needs to grow and thrive as new data suggest that total lending to the country’s private sector increased at a double-digit rate year-on-year since August 2019.

According to a report by analysts at FBNQuest, credit to the private sector expanded by 10.2 percent year-on-year in May, to a staggering N32.20 trillion or $78.2 billion.

This data series covers lending from all sources including the Central Bank of Nigeria (CBN) and the state-owned development banks.

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The analysts say there is a long way to go in boosting financial intermediation when we consider the scale of the unbanked informal economy. Nigeria’s PSCE/GDP ratio was just 19.8 percent at end-2020.

If banks’ lending to the private sector is expanding up to 10.2 percent, it is good news. It means that banks are helping to build the economy and we hope that borrowers would pay back,” said Uju Ogubunka, president, Bank Customers Association of Nigeria (BCAN).

According to Ogubunka, if banks are helping the economy to grow that means more people will be gainfully employed, thereby reducing the rate of unemployment. However, he is concerned that the economy itself is not growing at the same rate.

Another CBN series in the Quarterly Statistical Bulletin also shows the allocation of credit by deposit money banks (DMBs). This gives us a total of N20.37 trillion at end-2020, and therefore a difference approaching N12 trillion with the fuller measure.

The FBNQuest report says part of the growth in lending by the DMBs is due to the weakness of the currency, which adds to the naira equivalent of the industry’s FX-denominated loans. Some estimates put these loans at up to 40 percent of their total lending.

The analysts believe that Tier One banks are currently guiding to loan book growth over 12 months of up 10 percent. For the smaller players in the industry, the guidance can run up to 15 percent.

The Monetary Policy Committee (MPC) regularly supplies updates on the execution of the CBN’s development finance role, which accounts for the larger part of the difference we have noted between the measures of PSCE.

In its latest communiqué from late May, the apex bank and regulator said that N631 billion had been disbursed under the CBN’s anchor borrowers’ programme, N253 billion under the targeted credit facility and N856 billion under the real sector intervention (mostly for light manufacturing).

These are three of more than 10 programmes covering health, the electricity business, the creative industry, youth investment and more.

The loans of four development finance institutions, led by the recapitalised Bank of Industry, amounted to a further N940 billion in aggregate at end-2020.

The same MPC communiqué notes that gross banking sector credit increased by N850 billion in Q1 ’21 to N23.53 trillion. This appears to be a measure for the DMBs but maddeningly different to that quoted in the CBN’s bulletin.

Members of the MPC noted that the apex bank interventions have helped in boosting output, urging the CBN to continue to aggressively increase its interventions in these subsectors, including agricultural processing and manufacturing.

Godwin Emefiele, the CBN governor, had pleaded the bank’s readiness to increase its development finance interventions to further support start-ups and Small and Medium Enterprises (SMEs) in the country.

Emefiele made the pledge while delivering the 51st Convocation Lecture of the University of Lagos, Lagos, on July 5, 2021, noting that increased access to finance for start-ups and SMEs was highly essential for the nation’s economy to grow.