Credit to the private sector dropped by N3.8 trillion in November 2023 to N59.74 trillion from N63.57 trillion reported in October 2023.
The Central Bank of Nigeria (CBN) in its money and credit statistics revealed that credit to the private sector witnessed the highest decline in November 2023 when the country unified the local currency at the foreign exchange market.
From the CBN’s statistics, credit to the private sector recorded its first decline in November amid a double-digit inflation rate, a weakened Naira against other currencies, a hike in operating expenses, and insecurity, among others.
In January 2023, the CBN revealed that credit to the private sector stood at N41.54 trillion, increased to N41.75 trillion in February, and crossed the N43 trillion mark to N43.01 trillion in March 2023.
The statistics by CBN showed that credit to the private sector increased to N43.66 trillion in April 2023, hit N44.8 trillion in May 2023, and closed June 2023 at N52.81 trillion.
Between July and August 2023, credit to the private sector stood at N56.46 trillion and N56.95 trillion, respectively. It, however, rose to N59.51 trillion in September 2023.
Analysts have expressed that the cost of production, coupled with the scarcity of foreign exchange, played a significant role in banks’ credit to the private sector.
The SSA Banking research analyst, Vetiva Capital Management Limited, Mr. Olumide Sole, said, “The decline in credit to the private sector can majorly be attributed to risk management strategies adopted by financial institutions to weather the storm of the current macroeconomic headwinds seen in the economy as a result of the policy reforms implemented by the new administration.
“Also, another major reason is the removal of the limit in the SDF window, as banks can now dump their excess liquid assets via that window and earn a risk-free return of 15.75 cent compared to giving out credit to the private sector which comes with additional risk.”
CEO, of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf attributed the decline to macroeconomic challenges.
“With the present challenges in the foreign exchange market, cost of production, and high energy cost, investors will not want to take credit from banks. Banks can only finance projects that are doing well. If any project has challenges, it will affect the demand for credit.
“The decline in credit to the private sector is because of the challenges in the economy. The present challenges are affecting a lot of businesses and you do not expect them to take money from the banks.”
He explained that interest rates in the banking sector also witnessed an increase amid the 18.75 percent Monetary Policy Rate (MPR).
According to Yusuf, “MPR has remained at 18.75 percent but the rate of lending has increased significantly in the banking sector. For SMEs today, the interest rate is over 25 percent. Some banks’ interest rate is over 30 percent. If the interest rate is high, people will be reluctant to borrow money from banks.”
On the 45 percent decline in lending to the government, he expressed that President Bola Tinubu’s administration is focusing on borrowing less from banks.
“Because of the inflationary effect of borrowing from banks, there is a deliberate policy by this present administration to reduce government exposure to bank’s credit,” he added.
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