The Central Bank of Nigeria said that in the first five months of 2024, loans and other support from Nigerian banks to the private sector increased to approximately N375.78 trillion.
This is almost 74.98% more than the N214.76 trillion that was reported at the same time last year, showing that the banking industry has been steadily supporting the economy.
Loans, trade credits, and other account receivables and supports that banks provide to the private sector over time are all considered forms of credit to the private sector from banks. Credit to the private sector is a widely used indicator of the banking industry’s ability to maintain a strong balance sheet and support national economic goals.
According to CBN data, loans to the private sector increased by 65.9%, or N29.52 trillion, to N74.31 trillion in May 2024, compared with N44.79 trillion recorded in the comparable period of 2023.
A further breakdown showed that in April, CPS stood at N72.92tn; it was N71.21tn in March. February recorded the highest amount of contribution at N80.86tn and the second highest was N76.48tn in the preceding month. The latest CPS data came on the heels of a recent report on capital importation into the country.
The report showed that banks attracted significant capital imports into the country. Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually took a more active stance in the nation’s economy.
According to the National Bureau of Statistics capital importation report for Q4 2023 released earlier this month, Stanbic IBTC Bank, Citibank Nigeria, and Rand Merchant Bank led the pack in the facilitation of $1.09 billion in capital importation into Nigeria in the fourth quarter of 2023.
According to the report for Q4 2023, Nigeria’s capital inflow rose by 2.62 per cent to $1.09 billion from $1,060.73 million recorded in the same period in the previous year. The production/manufacturing sector recorded the highest inflow with $450.11 million, representing 41.35 percent of total capital imported in Q4 2023, followed by the banking sector, valued at $283.30 million (26.03 percent), and financing with $135.59 million (12.46 percent).
Experts at Cordros Capital said they expected the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks to continue to drive the willingness of commercial banks to create risky assets.
In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at the International Monetary Fund examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy. The study found that “banks with strong balance sheets were better able to maintain lending during the crisis.”.
According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.
“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises and provide support for regulatory proposals under the Basel III framework,” the IMF report stated.
The CBN Governor, Dr. Olayemi Cardoso, had said the ongoing recapitalization would strengthen banks further to drive the $1 trillion economic target and support stable growth in the economy.
According to him, additional capital would not only provide a substantial buffer for banks against potential economic challenges but would also enhance Nigerian banks’ capability to support massive economic growth and play competitively globally.
