Banks’ Consumer Loans Up 31% to N2.55trn on Rising Inflation

Kayode Tokede

On the back of rising inflation rate in Nigeria, banks’ consumer loans rose by 31 per cent or N615.82 billion in one month to N2.55trillion in July 2022 from N1.93trillion in June 2022, the Central Bank of Nigeria (CBN) economic report for the month of July 2022 has revealed.

The CBN in the report stated that, “As a share of total claims on the private sector, consumer credit rose to 9.4 per cent, from 7.2 per cent at end-June. The increase in consumer credit could be attributed to general rise in prices which impacts on households’ budget and spending behaviour.”

The inflation rate opened in January 2022 at 15.6 per cent and increased to 19.64per cent in July 2022, according to the National Bureau of Statistics (NBS).

Banks’ consumer loans in its Year-on-Year (YoY) performance has increased by 38.34 per cent or N706.45billion from N1.84trillion in July 2021 to N2.55trillion in July 2022 amid increasing inflation rate and hike in CBN’s Monetary Policy Rate (MPR).

The CBN  had in a report disclosed that banks’ consumer loans grew by 0.17 per cent to N2.08trillion in January 2022, from N2.07trillion in December 2021, accounting for 8.7 per cent of total credit to the private sector.

The report attributed the increase to growing confidence in the economy following gradual pick-up in economic activity as well as the various policies of the CBN, such as the loan-to-deposit ratio (LDR) policy and the collateral registry.

However, the report for the month of July 2022 stated that a disaggregation of consumer credit shows personal loans stood at N1.93trillion billion, accounting for 75.7 per cent, while retail loans stood at N620.29 billion, and accounted for 24.3 per cent.

Consequently, banks raised lending rates, and the average prime lending rate increased to 12.1 per cent in July from 11.68 per cent in January, while average maximum lending rate rose to 27.61 per cent in July from 27.65 per cent in January.

A Tier-2 bank top executive who pleaded anonymity, explained to THISDAY that better margin hike due to steady increase in inflation rate and economy diversification boost banks consumer loans.

He noted that banks increased lending over better margins, stressing that consumers, salary earners and traders have increased borrowing from the banks.

The CBN in its second quarter of 2022 (Q2 2022) report had revealed that consumer credit outstanding declined by 15.2 per cent to N1.9trillion at end-June 2022, from N2.28trillion at the end-March 2022.

“The decline was partly due to decreased banking system liquidity and the ripple effect of the increase in the Monetary Policy Rate (MPR) to 13 per cent by the Monetary Policy Committee (MPC) of the CBN in its May 2022 meeting.

“The share of consumer credit in total private sector credit shrank by 2.1 percentage points to 7.2 per cent, from 9.4 per cent in the preceding quarter,” the report disclosed.

According to the report, total credit by the CBN intervention in critical sectors of the economy to spur growth increased by 2.5 per cent to N27.53trillion in July from N26.85trillion in June.

The report stated that “A breakdown of total credit utilisation shows that, credit to the agricultural sector expanded by 3.8 per cent to N1,694.08 billion, from the level at end-June.

“Similarly, credit to industry and services sectors grew by 2.7 per cent and 2.2 per cent, to N10,880.31 billion and N14,952.80 billion, respectively.

“In terms of share in total credit, services and industry maintained dominance with shares of 54.3 per cent and 39.5 per cent, respectively, while the share of agriculture stood at 6.2 per cent.”

The report noted that the federal government spent a whopping sum of N2.26trillion to service debts in seven months of 2022.

The CEO, Wyoming Capital & Partners, Mr. Tajudeen Olayinka had stated that the debt servicing by the federal government has encouraged investors to provide additional support to the government with respect to further investment in government securities.

According to him, “It presents government in good light, with the opportunity to fund developmental projects across the country. The negative aspect of debt servicing in Nigeria is the sustainability problem that has now greeted the current administration of President Muhammadu Buhari, whereby, more than 100per cent of revenue is now being expended on debt servicing, giving room for possible default and failure of government in no distant future, especially with respect to foreign debt component.

“The fact that government spends its entire revenue to service debts, despite introducing new taxes and raising rates in some others, is an indication that economic agents are not generating enough outputs, sufficient to put Nigeria’s economy in the positive territory. It is actually a sign of declining output. It is simply a failure of fiscal policy.”

He hinted that the only way to cut the debt service figure down is for government to shift away from its current public sector dominance, and allow private sector businesses to occupy the driver’s seat, so as to consistently put the economy in the positive territory.

“Government should begin to consider removing subsidies in phases, in a manner that will not add more to the hardship on the ground. It also presents an opportunity to allow the economy to run a normal course of adjustment,” he added.

According to the report, “Debt service obligations in 2022Q1, amounted to N897.17 billion, compared with N428.60 billion in 2021Q4. The rise was attributed to the principal repayments and redemption of matured debt obligations.”

y, which was developed by SON was designed to identify priority areas to focus on based on national needs assessment.