Despite CBN Tightening Measures, Banks’ Loan Portfolio Surged by N20.8trn in 2023

Kayode Tokede

Despite the stringent policy measures implemented by the Central Bank of Nigeria (CBN), commercial banks in the country have witnessed a remarkable N20.8trillion Year-on-Year (YoY) growth in their total credit to the private sector, reaching a substantial N62.52 trillion in 2023.

Data from the CBN revealed that the private sector credit extension (PSCE) experienced a robust   49.78 per cent increase YoY, leading up to December 2023 from N41.74 trillion reported in December 2022.

FBNQuest in a new report noted the data by CBN encompasses lending activities across the entire banking system, and encompassing entities banks.

Banks lending to private sustained momentum in first eight months of 2023 but dropped in September to N59.51 trillion from N56.95 trillion in August, when the CBN removed the N2 billion daily limit on funds placed at the Standing Deposit Facility (SDF) window.

It also dropped in November to N59.74trillion from N63.57trillion in October 2023.

The SSA Banking research analyst, Vetiva Capital Management Limited, Olumide Sole in a chat with THISDAY attributed the decline in credit to private sector to risk management strategies adopted by financial institutions to whether the storm of the current macroeconomic headwinds seen in the economy as a result of the policy reforms implemented by the new administration.

According to him, “another major reason is the removal of the limit in the SDF window, as banks can now dump their excess liquid assets via that window and earn a risk-free return of 15.75per cent compared to giving out credit to the private sector which comes with additional risk.”

The reported N20.8trillion YoY growth in lending to real sector is coming on the backdrop of rising inflationary pressures.

These measures include the reintroduction of Open Market Operation (OMO) auctions, Cash Reserve Requirement (CRR) debits, lifting the N2.0 billion cap on Standing Deposit Facility for Deposit Money Banks (DMBs), and modifying the asymmetric corridor of the Monetary Policy Rate (MPR) to (+100/-300basis points) from the previous (+100/-700 basis points).

To effectively curb inflation, the CBN has consistently pursued liquidity tightening through Open Market Operation (OMO) sales. In the fourth quarter of 2023, the Central Bank conducted three OMO auctions, followed by another in January 2024.

During the most recent auction, the CBN set a one-year tenor with a stop rate of 17.5 per cent, attracting a substantial oversubscription of N350 billion.

On January 11, 2024, the CBN conducted its first OMO sales of the year, amounting to N357.2 billion. These measures reflect the central bank’s commitment to employing strategic financial tools to maintain economic stability amidst inflation challenges.

 On the impact of banks lending to the private sector, analysts stated that Nigeria’s business environment is facing a lot of macro economic challenges, stressing that its impact not reflecting in terms of jobs creation among others amid foreign exchange challenges and high cost of doing business. 

Speaking with THIISDAY, the Director/Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf stated that the distribution of banks credit is towards key sectors such as oil & gas, with SMEs contribution not up to 1 per cent.

“When you are talking about development, Small and Medium Enterprises (SMEs) segment is a very critical segment. If this sector does not have to credit, it is difficult to see the impact. Over 90 per cent of these funds are going to oil & gas, telecommunication and high-earning sectors which we have the influence of multinationals.

“If you have such distribution of credit, the impact on development and jobs will be very minimal. Another point is that which sector does this fund go into? I can bet you, not much of this N20.8trilliion private sector lending to the real sector goes into Agriculture, manufacturing and real estate. The distribution of funds matters in macro economy growth and these sectors are seriously behind.

“Let’s talk about the value of money. N1 million in 2022 is not the same as N1million in 2023. All these factors are constraining factors   to the impact of credit to the private sector on the economy.”

According to the Head, of Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi, “Some will argue that part of the reasons for high inflation rate is high money in circulation. The high money in circulation has to do with the velocity of the money that has to do with the impact of credit to the private sector.

“For most banks where these funds are flowing from, remember after the election, a lot of them increased lending to the private sector. However, the devaluation increased the working capital of those in the real sector and it shrank the impact of private sector lending to the real sector.”

In addition, the Vice President, Highcap Securities Limited, Mr. David Adnori said the added N20.8 trillion credit to the private sector has not added anything to Nigeria’s macro economy.

According to him, “If the additional N20.8trillion was impactful, we could have seen the impact reflecting on the inflation rate.  The inflation rate has continued to gallop, indicating that what the banks are financing has no impact in sharping the supply situation in the economy.

“CBN does not disclose the sectors that benefited from the impact and it is insufficient to the best of my knowledge.”

On improving the impact this year, Adnori called on banks to extend credit to productive sectors in a move to further enhanced domestic production rather than concentrating on financing import trade.