Credit To Economy Rises By 5% To N44.7trn
Credit to the economy grew by five percent to N44.7 trillion in five months to May this year driven by increased lending to the private sector.
However, currency outside banks and currency in circulation fell by 7.6 per cent and 4.1 per cent during the same period reflecting the impact of increased usage of electronic payment channels.
The CBN disclosed this in its updated Money and Credit data, which also showed a three per cent growth in Current Account deposits of banks.
The Economic Confidential analysis of the data shows that credit to the economy rose by N2.1 trillion or five per cent to N44.7 trillion in May from N42.6 trillion in December 2020.
The growth was driven by credit to the private sector which shot up by N2.1 trillion or seven per cent during the period to N32.2 trillion in May from N30.1 trillion in December 2020.
Credit to the government however grew marginally by N100 billion or 0.8 per cent during the period to N12.5 trillion in May from N12.4 trillion in December.
Further analysis shows that Currency in Circulation (CIC) and Currency Outside Banks (COB) fell by 4.1 per cent and 7.6 per cent respectively in the five months to May 2021.
According to the CBN, CIC fell by N1.2 trillion to N27.9 trillion in May from N29.7 trillion in December 2020.
Similarly, COB fell by N1.9 trillion to N23 trillion in May from N24.9 trillion in December 2020.
On the contrary, Demand Deposits of banks (current accounts) rose slightly by N400 billion or three per cent to N13.9 trillion in May from N13.5 trillion in December.
Meanwhile, the immediate past Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, has expressed concern over the excessive dependence of the Federal Government on Ways and Means borrowing through the CBN, saying, this practice is hurting the economy.
He observed that a large portion of the domestic borrowing was through Ways and Means which has serious implications for inflation.
Yusuf stated this at the Bi-Monthly Forum of the Finance Correspondents Association of Nigeria (FICAN) held in Lagos. Ways and Means is a mechanism for the government to borrow from the Central Bank of Nigeria, CBN, under specified credit policy which, most times, entails printing money.
Speaking on the topic “‘Post-Covid-19 Economy In H1:2021 And Outlook for Financial Services Sector”, Yusuf stated: “In the last couple of months or the last two or three years, the rate at which the government is borrowing from the CBN is becoming increasingly disturbing.
It is getting very high and very worrisome. It has also a major implication for inflation.
“ While government borrowings create opportunities for banks to invest funds in government securities such as sovereign bonds and treasury bills with low risk, it has a crowding effect on the economy by making fewer funds available for lending to the private sector.
“Meanwhile, the gradual uptick in interest rates on government securities [notably sovereign bonds, savings bonds, and treasury bills] implies that the Federal Government would spend more on debt servicing in the near to medium term amid dwindling fiscal revenues.
“When you look at the Now the Medium Term Expenditure Framework (MTEF) just released by the Minister of Finance a few days ago, when you look at the number and the table under debt service, the debt service under Ways and Means. The interest payment between January and May is N480 billion. We can now imagine what the principal sum will be.
“The total amount that has been spent on debt service is about N1.8 trillion, that is from January to May. and the CBN’s Way and Means is N480 billion. Of course you have the component for foreign loans, treasury bills, bonds and others.
“But the point here is the inflationary implication of continuous pressure from the fiscal authorities on the CBN to finance the deficit. It is not healthy for the economy.
“Even the CBN Act stipulates that the CBN should not give more than fiver per cent of the actual revenue of the previous year as borrowing to the government. And that before the CBN can advance another round of credit to the government, that of the previous year must have been settled. That is what the CBN Act stipulates. But the level of compliance with this provision is very low.
“But even more so it is not even about the legal aspect, it is about the inflationary implication.
So we need to caution the government against too much dependence on the CBN for financing of the deficit because of the high inflationary impact.
“It is not healthy for the economy because inflation erodes the value of people’s income and affects their standard of living. The value of a currency has a lot to do with poverty and welfare. We must be worried about the fast rate of money supply because inflation triggers poverty,” he said.
He added that “Inflationary environment elevates production costs with adverse impact on corporate profitability, thereby making it increasingly difficult for businesses and corporates to meet their debt obligations to lending institutions. This translates into a significant increase in credit loss provisions with adverse impact on banks’ profitability.”
