Credit To Private Sector Increases By 6.68% To N32.8trn
With a significant percentage given to large corporates, multinationals and high end medium enterprises and no noticeable impact on the real sector, which concerns production, purchase, flow of goods and services, credit to private sector maintain an upward momentum in the first seven months of the year.
According to the Central Bank of Nigeria (CBN) Money and Credit Statistics, credit to private sector gained 6.68 per cent from N30.65trillion in January to N32.8trillion in July 2021.
But analysts said increase in private sector has not manifested in increased output, lower inflation, lower interest rates, improved Purchasing Managers Index and stock market performance as well as job creation opportunities.
While describing the growth in credit to private sector as laudable, analysts stressed that the impact would depend on the sectoral spread, quality of credit, tenure of the funds and interest rate.
Meanwhile, the CBN Money and Credit Statistics revealed that credit to private sector crossed the N32 trillion mark in May and since then, maintained growth.
According to the CBN, credit to government rose by 5.3 per cent to N12.13trillion in July from N11.52trillion in June.
Analysis of CBN numbers showed that credit to private sector in seven months of 2021 appreciated by N2.19 trillion, a development some analysts say showed deposit money banks supporting the apex bank in lending to real sector and creating jobs.
Further analysis of the CBN Credit Statistics revealed that credit to private sector hits a peak of N30.19trillion in July 2021 amid the ease in COVID-19 lockdown.
According to the CBN statistics, Money Supply (M3) increased to N39.79trillion in July from N38.78 trillion in January 2021, while Narrow Money rose by 2.15 per cent from N15.95 trillion in January to N16.29 trillion in July.
Further review of the CBN statistics showed that Net Domestic Assets (NDA) rose to N44.97 trillion in July, an increase of five per cent from N42.95 trillion in January this year.
Some analysts contended that banks lending to real sector played a critical role in the recent increase in Nigeria’s Gross Domestic Product (GDP).
The National Bureau of Statistics (NBS) had last week announced that Nigeria’s real GDP growth for the second quarter (Q2) of 2021, came in at 5.01 per cent Year-on-Year (YoY) increase.
Announcing the GDP figures, the bureau said: “The YoY performance was mainly supported by the Non-oil GDP component, as it grew 6.7 per cent y/y compared to the 6.1 per cent YoY contraction in Q2:2020. This was on the back of the strong growth recorded in Trade (22.5 per cent YoY), Transportation & Storage (76.8 per cent YoY), and Manufacturing (3.5 per cent YoY) activity sectors amidst full re-opening of the economy.”
Commenting on the impact of private sector lending to Small and medium-sized enterprises (SMEs), Head, Retail Investment, Chapel Hill Denham, Mr. Ayodeji Ebo opined that there has not been a major credit to SMEs aside government intervention.
Ebo said banks lending towards government bond, and Commercial papers and corporate lending increased recently.
On his part, an Economist & Private Sector Advocate, Dr Muda Yusuf said the growth in credit to private sector is laudable, stressing that the impact would depend on the sectoral spread, quality of credit, tenure of the funds and interest rate.
He explained further that: “The CBN has done a lot in lending to agriculture, but the quality of the lending is an issue. Reports indicate high default rates in agricultural credit, especially the anchor borrowers’ scheme.
“Monetary intervention is imperative for real sector development. But it is not sufficient to guarantee the desired outcomes of growth and productivity. The context in which businesses are operating is as important as the funding, if not even more important.
“The totality of the investment environment must be right for sustainable real sector development to be achieved. Therefore, to complement the credit to the private sector, the other factors that should reckoned with include infrastructure quality, especially power, roads and railways.”
He added, “There are also issues around the quality of the regulatory environment, the foreign exchange policy regime, the ports situation, volatility of the naira exchange rate, the tax environment and the security situation. These are not things monetary intervention can solve. It takes an impactful fiscal policy intervention to fix these problems.
“Some of the issues border on economic reforms that need to happen. Engagements between the private sector stakeholders and policymakers is critical to achieving sustainable development of the economy.”
Speaking from a different perspective, the President, Association of Capital Market Academics of Nigeria (ACMAN), Prof Uche Uwaleke said the increase has no noticeable impact on the real sector, which concerns the production, purchase, flow of goods and services.
He stated that, “While inflation rate in June trended marginally downward, available evidence regarding the other metrics does not indicate any significant impact of the increase in private sector lending on the economy.”
He suggested that, “For impact to be noticeable, it needs to be sustained and scaled up, especially targeting critical sectors of the economy with job creation potentials such as SMEs.”
The Governor of CBN, Mr. Godwin Emefiele in his communiqué at the end of July’s Monetary Policy Committee (MPC) meeting said the committee noted that broad M3 declined to 2.02 per cent in June 2021, compared with 2.99 per cent in May 2021.
According to the CBN boss, “This development was largely driven by a slowdown in the growth rate of Net Domestic Assets (NDA) and Net Foreign Assets (NFA). Net Foreign Assets contracted by 3.65 per cent due to the contraction of foreign asset holdings of the central bank, as well as non-interest, primary mortgage, and microfinance banks. The marginal decline in Net Domestic Assets reflected the slowdown in aggregate credit net, which decreased to 4.30 per cent in June 2021, from 4.79 per cent in May 2021.”
A member of the MPC and the Deputy Governor, Operations at the CBN, Folashodun Shonubi, in a statement had said, “Growth in credit to the government and credit to private sector reflected impact of various measures by the CBN to promote flow of credit to drive economic activities.”
Shonubi added that: “I believe the CBN’s interventions through aggressive provision of credit should continue as a complement to on going effort by the fiscal authority to boost economic activities.
“As the government act, more decisively to discourage bad behaviour and restore orderliness, we must collectively work to overcome the insecurity challenges. At the same time, we must begin to tighten to deal with the subtle monetary component of inflationary pressure and curb spiralling inflation, without suffocating economic growth.”
The apex bank in its statistics also disclosed that currency in circulation increased by nearly three per cent to N2.81trillion in July from N2.74trillion in June.
The CBN defined currency in circulation as currency outside the vaults of the apex bank; that is, all legal tender currency in the hands of the general public and in the vaults of the Deposit Money Banks.
The head, Investment research & business Development, Pac holdings, Moses Ojo attributed hike in currency in circulation to monthly federal allocation to state government.