Banks’ credit to the private sector in Nigeria surged by 34%, from N56.46tn in the previous year to N75.48tn in July. According to the data gotten from Central Bank of Nigeria (CBN), on credit to the private sector, this represents a monthly increase of approximately N2.29tn between June and July.
The credit to the private sector (CPS) encompasses loans, trade credits, and other account receivables and support provided by banks to the private sector within a specific period. It serves as a global measure of the banking sector’s financial strength and its contribution to the national economic agenda.
Experts believe that increased private sector credit is a significant boost to the economy, as there is a strong correlation between credit to the private sector and economic growth. Analysts at Cordros Capital predict that this trend will likely continue in the near future.
“We believe the re-enforcement of the CBN’s limit on Deposit Money Bank’s loans-to-deposits macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term,” Cordros Capital stated.
Analysts, however, noted that the apex bank’s intensified monetary policy tightening measures could impact the magnitude of growth going forward.
A study published by the CBN noted, “Credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.”
The study found that private-sector credit increased economic growth.
The balance sheet strength of banks also determines the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.
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 Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the credit outlook remained cautious, calling for an expansive distribution of credits across all tiers of companies and sectors.
Yusuf expressed concern about the uneven distribution of credit among different sectors and companies, particularly small businesses. He noted that while small businesses play a crucial role in job creation and economic inclusion, they may not benefit significantly from current credit allocation.
He attributed this to banks’ concerns about credit risk associated with lending to small businesses and certain sectors. He emphasized the need for efforts to promote inclusive and stable credit access to all sectors, including those that are particularly important for growth and employment, such as agriculture, manufacturing, real estate, mining, and construction.
Meanwhile, a report by the CBN showed that Nigerian banks had seen a significant increase in deposits during the first half of this year.
The report indicated that banks’ demand deposits rose from N26.7tn recorded at the end of December 2023 to N33tn by June 2024.
Nigerian banks have experienced steady growth in deposits throughout the year. Total demand deposits rose by 8.1% in the first quarter, reaching N28.9 trillion, and continued to climb by 14.3% in the second quarter, reaching N33 trillion.
This surge in deposits has provided banks with ample resources to expand their lending activities. Financial analysts believe that banks are well-positioned to continue increasing their loan portfolios, driven by a supportive regulatory environment and their aggressive growth strategies.
This article was written by Tamaraebiju Jide, a student at Elizade University
