Credit to Private Sector Up 85.2% YoY to N76.94tn on Naira Devaluation, LDR

Kayode Tokede

Bank’s credit to private sector leaped to N76.94trilliiion in January 2024, representing an increase of 85.2 per cent or N35.4 trillion Year-on-Year (YoY) from N41.54 trillion reported January 2023, THISDAY analysis of latest data released by the Central Bank of Nigeria (CBN) has revealed.

Month-on-Month, the Money and Credit Statistics report by the CBN showed that credit to private sector gained 23.06 per cent or N14.42 trillion from N62.52 trillion December 2023 amid the unification of the naira policy of the apex bank.

Recently, THISDAY reported that credit to private sector in 2023 rise to N62.52 trillion, a growth of 50.49 per cent or N20.98 trillion from N41.54 trillion reported by the CBN in January 2023.

According to analysts, the reported N76.94 trillion credit to private sector is on the backdrop of the weakening of the naira at the foreign exchange market, stressing that banks were lending to big corporations to meet the 65 per cent Loan-to-Deposit Ratio (LDR) threshold of the CBN.

An investigation by THISDAY revealed that Naira at the Nigerian Foreign Exchange Market (NAFEM) closed January 2024 at N1,356.88 per dollar from N899.39 against the dollar it closed in December 2023.

In January 2024, the local currency depreciated by 50.87 per cent or N457.49 against the dollar despite CBN’s numerous policies to improve liquidity and stabilize the foreign exchange market.  

As part of its several measures, the CBN updated its Cash Reserve Requirement (CRR) mechanism, making banks with minimum LDR below requirement to face a 50 per cent lending shortfall.

The policy was set to improve lending to customers to stimulate the real sector of the economy.

It implies that for every N100 received as deposits, the banks are to lend N65 to customers.

The apex bank had in a circular to banks stated that it would resume the enforcement of the LDR policy effective July 31, 2023.

Also, CRR is one of the monetary policy tools the CBN uses to limit the circulation of money or supply in the economy, as banks’ liquidity drops. In the last monetary policy committee (MPC) meeting of the CBN in July 2023, the CRR was retained at 32.5 per cent.

However, the Acting Director of the Banking Supervision Department, CBN, Adetona Adedeji in a circular to all Deposit Money Bank (DMBs) said, the apex bank is ceasing its daily CRR debits and will be adopting an updated CRR mechanism that is intended to facilitate bank capacity for planning, monitoring and aligning with records with the CBN.

According to him, the determination of the segment of deposits subject to sterilization with the CBN as CRR will follow the processes outlined that, “utilization of the incremental Approach: the extant ratios commercial banks 32.5 per cent and merchant banks 10 per cent will be applied to increases in the bank’s weekly average adjusted deposits.”

The second phase is that a, “CRR levy of 50 per cent of the lending shortfall will be enforced for banks that do not meet the minimum LDR as per our correspondence to all banks referenced BSD/DIR/GEN/LAB/12/049 dated September 30, 2019.”

He stated that the CBN will provide the bank with details of the applied charges and their underlying computation rationale.

Commenting, the Director/Chief Executive Officer · Centre for the Promotion of Private Enterprise (CPPE), Mr Muda Yusuf explained that bank customers now need more money to fund their foreign exchange commitments.

According to him, “If those in the private sector does not have the needed fund, it means they will have to borrow from banks to support their business obligations. The volatility in the foreign exchange has forced some customers to borrow more from banks and it is responsible for N76.94trillion credit to private in January 2024.”

Speaking, the Vice President, Highcap Securitas Limited, Mr. David Adnori also alluded the growth to depreciation of the naira, stressing that a lot of big corporates have to access funds from the banks in a move to meeting the supply of their inputs.

According to him, “It is obvious that credit to private sector is expected to increase in January amid macro economic challenges. The weaken of the local currency has given more room to borrow from banks.”

On his part, the Head, Financial Institutions Ratings at Agusto & Co, Mr. Ayokunle Olubunmi in a chat with THIISDAY attributed the growth of credit to private sector in January 2024 to the devaluation of the naira and the 65 per cent LDR policy of the CBN.

“Between December 2023 and January 2024, we witnessed a significant fall in Naira. If you look at credit to private sector in naira terms, the dollar exposure could have been included. In Q3 2023, banks were trying to increase their lending to real sector in a move to boost their LDR and ultimately reduced the amount of debit they will be getting from CBN as penalty. After the election in 2023, banks understand the economy better, which makes it easy for banks to grant credit. All these impacted credit to private sector, ”Olubunmi said.

He added that the credit to private sector is expected to increase further in 2024.

“Banks with LDR below 65 per cent benchmark will want to grant more credit to private sector to escape CBN’s sanction,” he said.