Despite the rising inflation in Nigeria, credit to the private sector increased to N58.6 trillion in September 2023, becoming the highest so far, according to the Central Bank of Nigeria (CBN) latest money and credit statistics.
With the inflation rate in Nigeria currently at 26.72 percent in September 2023, the reported N58.6 trillion by CBN is 41.06 percent and 44.64 percent Year-till-Date and Year-on-Year (YoY) gain, respectively.
Credit to the private sector opened this year at N41.54 trillion in January 2023, gaining N17.07 trillion in nine months of 2023.
The statistics also disclosed that credit to the government dropped 1.10 percent to N34.12 trillion in September 2023 from N34.5 trillion reported in August.
Nigeria’s economy in the first quarter of 2023 recorded political tensions, scarcity of naira, and fuel shortages that slowdown business activities.
As a result of the slowdown in economic activities in Q1 2023, business conditions in the country deteriorated steeply, while price pressures climbed further in March 2023 and at the same time, borrowing costs were increased to a new record high.
Credit growth slowed slightly in January and February 2023, from the fourth quarter of 2022 and foreign direct investment plunged in 2022, hampered by the US dollar shortage, leading some companies to cancel their expansion plans.
The economy rebounded in the second quarter, following a peaceful transition in government after the 2023 general elections.
InsideBussinessNG can report that credit to the private sector in 2019 when the Loan-to-Deposit (LDR) policy was introduced, gained N3.75 trillion or 16.33 percent to close at N26.69 trillion from N22.95 trillion it opened in 2019.
In 2020, credit to the private sector added N3.5 trillion or 13.12 percent to close December 2020 at N30.15 trillion from N26.65trillion recorded in January 2020.
However, in the full year of 2021, credit to the private sector rose by N5.08 trillion or 16.57 percent closing 2021 at N35.38 trillion from N30.65 trillion reported by the CBN in January 2021.
In 2022, however, it gained 18.64 percent to close at N41.74 trillion in December 2022.
Analysts said the decline in credit to the government in September is a factor of money supply, which they noted is also a major driving force behind the upward inflationary trend.
However, Nigeria’s money supply declined to N66.4 trillion in the month of September 2023, a marginal drop from N65.15 trillion in August 2023.
The money supply, identified as M2, captures the total amount of money available in the economy at a particular moment.
This includes physical currency such as coins and banknotes, in addition to various types of deposits maintained by individuals, enterprises, and institutions in banks and other financial entities.
The money supply is a crucial indicator when evaluating interest rates and potential inflation during a certain timeframe.
The recent surge in Nigeria’s money supply aligns with challenges like escalating inflation, pressure on the exchange rate, and diminishing interest rates.
As the money supply grows, there’s a rising chance of inflation, leading to decreased purchasing power.
Additionally, a larger money supply might result in declining interest rates, especially when investment assets are in short supply.
This could potentially make Nigerian assets less enticing to overseas investors, a concern given Nigeria’s dependence on dollar imports.
M2 Breakdown – A closer look at the data reveals that certain components of the money supply, namely demand deposits, quasi-money, and currency outside banks, also witnessed growth and declines.
Specifically, quasi-money, which pertains to financial tools that can be easily converted to cash, surged from N40.9 billion to N41.06 trillion in the month of September 2023.
Moreover, demand deposits, primarily made up of chequing accounts or funds in banks accessible without prior notice, gained N1.07 billion to N23.01 trillion in September 2023 from N21.93 trillion reported in August 2023.
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