Banks’ net domestic credit hits all-time high of N53.7trn

… Investment confidence, inflation, FX pressure challenges impact – analysts

Nigerian banks’ net domestic credit has increased to an all-time high of N53.7 trillion in April 2022 according to data obtained from the Central Bank of Nigeria (CBN).

Net domestic credit comprises net credit to the government and to the private sector. A breakdown of the credit distribution shows that domestic credit (net) to the government stood at N16.5 trillion in April 2022, the highest ever and credit to the private sector grew to N37.1 trillion as of April 2022, the highest recorded so far.

The growth in domestic credit, especially credit to the private sector, is attributable to the Loan to Deposit Ratio (LDR) and other policies introduced by the CBN to spur growth in the real sector of the economy, according to analysts.

In 2019, the CBN raised the LDR of commercial banks to 65 percent in order to spur growth in the real sector of the economy.

Robert Asogwa, a member of the Monetary Policy Committee (MPC), said the extension of the moratoria on bank loans up to the middle of 2022 as part of the COVID-19 relief measures continues to alleviate the burden on the borrowers impacted severely by the pandemic.

Before the introduction of the LDR policy of 60 percent in September before raising it to 65 percent in December 2019, Net domestic credit stood at N32.9 trillion in April 2019 and N27.3 trillion in April 2018, data from the CBN indicated.

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“This is a demonstration of increased support of the banking sector to the productive sector of the Nigerian economy to accelerate economic growth,” Ayodele Akinwunmi, relationship manager, corporate banking at FSDH Merchant Bank Limited, said.

This, he said, would help to support job creation and increase tax revenue for the government. Although the figure is rising, the impact is lower than what it is on the face value when one takes into consideration the impact of inflation and foreign exchange depreciation. For instance, “a businessman who was selling baking flour last year and required a bank loan for the business will now require almost 50 percent more in the bank loan to do the same level of business he was doing last year because of increase in prices of wheat and exchange rate depreciation.”

Taiwo Oyedele, head of tax and corporate advisory services at PwC, said, the expansion of credit to the private sector is a positive development which if sustained would stimulate economic growth and create jobs.

“There is however concern that private sector investment confidence is dwindling according to a recent Manufacturers CEO’s Confidence Index (MCCI) Survey by the Manufacturers Association of Nigeria. Therefore, the government must address the structural challenges, impediments to investment and the policy environment,” Oyedele said.

Kingsley Obiora, deputy governor of the CBN in charge of operations said in his personal statement in March 2022 MPC, said the banking system maintained its resilience amid economic recovery. Total assets of the banking industry grew by 18.53 per cent from N52.32 trillion in February 2021 to N62.01 trillion in February 2022, driven by balances with CBN/banks, Open Market Operations (OMO) bills, and credit to the real sector of the economy.

As a result, he said the total flow of credit to the economy increased during the review period. A total of 116,443 new credits valued at N819.63 billion were granted to various sectors of the economy, from Oil and Gas, Manufacturing, and Governments to General commerce. This was higher than 96, 583 new credits valued at N566.35 billion in February 2021. Overall, the industry credit increased by 19.53 per cent to N25.25 trillion in February 2022 from N21.13 trillion in February 2021.

The industry Non-Performing Loan (NPL) ratio continued to trend below the prudential threshold of 5 per cent. It decreased to 4.80 per cent at the end of February 2022 compared with 6.38 per cent in February 2021. The downward trend was attributable to recoveries, restructuring of facilities and sound management practices by DMBs.

“I am also concerned about the rising share of the government in total credit to the domestic economy. Credit to the government in February when annualized is far above the provisional benchmark for 2022. The rise in public debt is a constraint on future income and economic growth. I believe that we must signal to the government the costs of deficit financing and continue to prod the government to explore alternative financing mechanisms for infrastructural spending,” Adeola Festus Adenikinju, member of the MPC said in March 2022.

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