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Private sector lending hits N40.2tn yet Nigeria remains underbanked

CBN resumes dollar sales to banks left out of Tuesday deals

Domestic credit to the private sector in Nigeria increased by 20.2 percent year on year to N40.2 trillion in August 2022, according to recent data from the Central Bank of Nigeria (CBN).

Analysts at FBNQuest believe that the strong expansion of money and credit growth partly explains the MPC’s move to increase banks’ cash reserve ratio by to 32.5 percent from 27.5 percent, in addition to a new monetary policy rate of 15.5 percent.

“Private sector credit extension (PSCE) and other monetary aggregates have continued to expand rapidly in recent months despite the CBN’s efforts to tighten monetary policy to reduce inflation,” the analysts said in FBNQuest’s daily report for Wednesday.

The Private Sector Credit Extension (PSCE) covers lending from all sources including the CBN and the state-owned development banks.

According to the report, although credit expansion rate has grown, its impact on boosting financial inclusion is marginal and requires more input.

Read also: Sub-Saharan Africa’s economic growth to decelerate to 3.3% in 2022 – World Bank

Nigeria’s financial inclusion rate grew from 63.2 percent in 2018 to 64.1 percent In 2020, according to EFInA. This however was below the CBN’s 80 percent financial inclusion target for the year 2020.

Although the inclusion rate dropped marginally to 35.9 percent in 2020, the excluded adult population of 38.1 million reported was higher than the 36.6 million recorded in 2018, meaning 1.5 million adults fell into the exclusion circle in the last two years to 2020.

A narrower measure of private sector credit expansion captured in another series in the CBN’s quarterly statistical bulletin which covers only lending by deposit money banks shows that it recorded a total of N25.3 trillion at the end of March 2022, representing a 20.3 percent year on year growth.

“This leaves a gap of around NGN14.9trn (between total PSCE and lending by DMBs) of which a small proportion is partly attributable to the time lag,” the analysts said.

They added that the sizable proportion of the difference can be explained by the CBN’s increasing credit interventions, and lending by state-owned banks such as the Bank of Industry.

According to the Monetary Policy Committee (MPC) communique for September 2022, the CBN injected a total of N9 trillion into the economy over the last three years. These include cumulative disbursements of N2.1 trillion under its Real Sector Support Facility, and over NGN1 trillion under its anchor borrower’s programme, among other intervention schemes.