Bank lending to private sector increases by 5.1 trillion naira to reach 36.7 trillion naira – CBN report

Between January and December 2021, Nigerian banking sector credit to the private sector increased by N5.1 billion or 16.67%, according to data obtained from the Central Bank of Nigeria.

This was in the money and credit statistics released by the regulator.

The report showed credit to the private sector stood at N30.6 billion in the first month of 2021.

The data, however, credits the private sector with credit of 35.7 billion naira in December last year, indicating an increase of 5.1 billion naira.

An in-depth analysis of the monthly value of credit shows a continuous increase throughout the year, except in February when credit to the sector fell by 100 billion naira. In February, the figure fell to 30.5 tn compared to the 30.6 tn recorded in January.

However, bank lending to the private sector reached N31.4 billion in March, followed by N31.9 billion in April, N32.1 billion in May and N32.6 billion in June.

The rise continued in July as credit to the sector rose to N32.8 billion. It rose to 33.4 tn in August, 34.39 tn in September, 35.3 tn in October and 35.7 tn in November.

On an annual basis, credit to the private sector increased by 5.6 billion naira, from 30.1 billion naira recorded in December 2020 to 35.7 billion naira in December 2021.

In June 2019, the central bank introduced a new policy measure, which required deposit banks to maintain a loan-to-deposit ratio of at least 60%.

The objective was to grow the economy by making credit available to the real sector of the economy.

At the end of the last quarter of that year, the Nigerian banking sector recorded the strongest real sector credit growth in the economy in almost five years, reaching N17.1 billion in the fourth quarter of 2019.

To further stimulate the growth of the economy, in October 2019 the CBN raised the LDR for banks to 65%, after the September 30 deadline given to banks to meet the 60% LDR guideline.

In his personal statement at the meeting of the Monetary Policy Committee held in November last year, a member of the Committee, Adenikinju Festus, said that even non-banking financial institutions had contributed significantly to the rise in global credit. to the economy.

He said: “The Other Financial Institutions report showed that they were a significant contributor to overall consumer credit. The other financial institutions granted 22.39 million facilities to 9.23 million loan recipients, including 69.26 thousand businesses. Overall, OFIs have contributed N2.79 trillion or 10.62% of credit to the banking sector over the past year.

Another MPC member, Ahmad Aishah, also said improvements in the macroeconomy were boosted by a resilient financial system that channeled significant credit to support growth-friendly sectors such as agriculture, manufacturing, general trade, as well as individuals and households. .

She said, “Total credit increased by N4.1 billion (21.12%) between end-October 2020 and end-October 2021, largely due to increased industry funding base and to the CBN’s loan-to-deposit ratio policy, which has encouraged banks to increase their lending to the real sector of the economy.This credit to the real sector has been essential for economic recovery.

Assessing the impact of the LDR policy on banks, a lecturer in economics at the Pan-Atlantic University, Olalekan Aworinde, said: “It is also remarkable that due to the increase in the LDR ratio, some banks ventured into other businesses in order to spread their risk,” he said.

Aworinde, however, pointed out that the multiplier effect was not visible, as the majority of banks were lending at double-digit interest rates.

According to him, structural and cyclical changes in the Nigerian space affect the overall effect of LDR policy.

“The target has not been fully achieved as borrowers do not have substantial collateral and this further hampers their access to finance,” he said.

He also said the government needs to create an enabling environment for small and medium enterprises to thrive in order to enhance growth.

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