Despite Challenges, Credit to Private Sector Rose by 19.7% to N41.80trn in 2022

Kayode Tokede

Despite severe macro economic challenges, credit to private sector increased to N41.80 trillion in 2022, representing an increase of 19.7 per cent or N 6.88 trillion Year-on-Year (YoY) from N34.92 trillion reported in 2021.

In its latest money and credit statistics, the Central Bank of Nigeria (CBN) revealed that the 2022 N41.80 trillion credit to private sector was an all-time high and was driven by double-digit inflation, among other domestic and foreign macro economic challenges.

Analysis of the apex bank’s statistics showed that N35.18 trillion was reported as credit to private sector in January 2022 and it increased to N35.99 trillion in February. It crossed the N36 trillion mark in March to N36.47trillion and rose sharply by 2.7 per cent to N37.45trillion in April.

It sustained the increase in May reaching N38.46 trillion and added N776.8 billion to reach N39.23trillion in June.

Further analysis of the CBN numbers showed that credit to private rose sharply by 1.6 per cent to N39.85 trillion in July and reached N40.20 trillion in August.  

In the last quarter of 2022, credit to private shows modest growth as Deposit Money Banks (DMBs) slow down lending to real sector.

The statistics revealed that credit to private sector closed September at N40.52trillion, gaining 0.8 per cent to close October at N40.84 trillion.

For November, the CBN reported N41.58 trillion and December, it closed at N41.8 trillion, representing an increase of 0.53 per cent MoM.

The CBN had last year disclosed that credit to manufacturing, general commerce, and oil & gas are benefiting from DMBs lending to real sectors despite double-digit inflation, increase in production cost, scarcity of foreign exchange and insecurity in the country.

Speaking on the figures, the Chief Executive Officer, Wyoming Capital and Partners, Mr. Tajudeen Olayinka explained that what usually drives credit growth is demand for transaction money.

According to him, “But what one should be concerned about is the relative contribution of the sector to country’s economic growth. Since N6.88 trillion credit growth to private sector has not translated to significant economic growth for Nigeria, it follows therefore that credit growth reported for 2022 was just a mere money illusion, and that what was required to trigger economic growth could be much more than the reported figure.”

On his part, the Chief Operating Officer, InvestData Limited, Mr. Ambrose Omordion noted that post-covid-19 business activities contributed to N41.8 trillion credit to private sector as of 2022.

He expressed that the recent increase in CBN’s Monetary Policy Rate (MPR) disrupted credit to private sector, stressing that cost of production had witnessed an increase and impact on local economy.

Also commenting, the Vice President, Highcap securities limited, Mr. David Adnori, said the slow growth in credit to private sector in four quarter (Q4) demonstrated how double-digit inflation has affected nominal demand for Naira by private sector businesses, given continuing rise in input cost and the usual burden of imported inflation.

 “Since this nature of demand for money may not necessarily translate to improved productivity, it follows, therefore, that economy may not also benefit in terms of additional jobs or output growth. This is just evidence of the unstable state of the macroeconomic environment in Nigeria,” Adnori added.

The Deputy Governor, Financial System Stability, CBN, Aisha Ahmad, at the last Monetary Policy Committee (MPC) in 2022 stated that the continued credit expansion particularly to output-enhancing sectors is expected to further support economic activities.

“However, sustained regulatory vigilance is required to mitigate any potential crystallization of credit risk in the financial system in view of lingering macroeconomic risks,” she said.

The statistics also revealed that currency outside banks dropped to N2.57 trillion in 2022, representing a decline of 12.6 per cent YoY from N2.94 trillion reported by the CBN in 2021.

Analysts have said the sustained tight monetary policy stance and the CBN’s currency redesign effort impacted on the drop in currency outside banks.

In addition, the statistics revealed currency in circulation dropped to N3.01 trillion in December 2022, a 8.4 per cent drop in its Year-till-Date performance.

The CBN had reported N3.29 trillion currency in circulation in January 2022.

Analysts attributed the decline in currency in circulation to the monetary policy of the CBN.

The governor of CBN, Mr. Godwin Emefiele in a statement during the weekend said the currency in circulation was only N1.4 trillion as of 2015.

According to him, “As at October 2022, currency in circulation had risen to N3.23trillion; out of which only N500 billion was within the banking industry and N2.7 tillion held permanently in people’s homes. Ordinarily, when the CBN releases currency into circulation, it is meant to be used and after effluxion of time, it returns to the CBN thereby keeping the volume of currency in circulation under the firm control of the CBN. So far and since the commencement of this program (currency swap), we have collected about N1.9 trillion; leaving us with about N900billion (N500 billion + N1.9 trillion).”

Commenting on decline in currency in circulation in 2022, Adnori said, “The recent increase in interest rate, which was triggered by the rise in MPR, encouraged people to invest in risk-free securities and place their money with banks. In addition, the weak spending by consumers and improved electronic banking patronage may have also contributed to the drop in currency in circulation.”