Between January and December 2021, the Nigerian banking sector’s credit to the private sector rose by N5.1tn or 16.67 per cent, according to data obtained from the Central Bank of Nigeria.
This was contained in the Money and Credit statistics released by the regulator.
The report showed that credit to the private sector stood at N30.6tn during the first month of 2021.
The data, however, put credit to the private sector at N35.7tn by December of last year, indicating a N5.1tn increase.
A close analysis of the monthly credit value shows a continuous increase throughout the year, except for February when credit to the sector dropped by N100bn. In February, the figure fell to N30.5tn from the N30.6tn recorded in January.
However, bank lending to the private sector rose to N31.4tn in March, further to N31.9tn in April, N32.1tn in May, and N32.6tn in June.
The climb continued in July as credit to the sector rose to N32.8tn. It increased to N33.4tn in August, N34.39tn in September, N35.3tn in October and N35.7tn in November.
On a year-on-year basis, credit to the private sector rose by N5.6tn, from N30.1tn recorded in December 2020 to N35.7tn in December 2021.
In June 2019, the central bank introduced a new policy measure, which required Deposit Money Banks to maintain a minimum of 60 per cent Loan to Deposit Ratio.
The objective was to grow the economy by making credit available to the real sector of the economy.
At the end of the last quarter of that year, the Nigerian banking sector recorded the most credit growth of the real sector of the economy in almost five years, hitting N17.1tn in the fourth quarter of 2019.
To further spur growth in the economy, the CBN in October 2019 raised the LDR of banks to 65 per cent, after the September 30 deadline given to the banks to meet the 60 per cent LDR directive.
In his personal statement at the Monetary Policy Committee meeting held in November last year, a member of the Committee, Adenikinju Festus, said even non-bank financial institutions contributed significantly to the rise in aggregate credit to the economy.
He said, “The report on the Other Financial Institutions showed that they contributed significantly to aggregate consumer credit. Other Financial Institutions granted 22.39m facilities to 9.23 million loan beneficiaries out of which 69.26 thousands were corporate consumers. Overall, OFIs contributed an additional N2.79tn or 10.62 per cent to the banking sector credit in the past one year.”
Another member of the MPC, Ahmad Aishah, also said the improvements recorded in the macro economy were propelled by a resilient financial system which channeled significant credit to support growth-enhancing sectors such as agriculture, manufacturing, general commerce, as well as individuals and households.
She said, ”Total credit increased by N4.1tn (21.12 per cent) between the end of October 2020 and the end of October 2021 , due largely to the increase in the industry funding base and the CBN’s Loans to Deposit Ratio policy, which has encouraged banks to increase lending to the real sector of the economy. This credit to the real sector has been critical for the economic recovery.”
In assessing the impact of the LDR policy on the banks, a senior lecturer of Economics at the Pan Atlantic University, Olalekan Aworinde, said, “Also noticeable is that because of the increase in LDR ratio, some banks ventured into other businesses in order to spread their risks,” he said.
Aworinde, however, pointed out that the multiplier effect was not visible, because majority of the banks lent at double-digit interest rates.
According to him, the structural and cyclical changes in the Nigerian space affect the overall effect of the LDR policy.
“The objective has not been totally achieved, because the borrowers do not have substantial collateral securities and this still hampers their access to finance,” he said.
He also said the government needed to create an enabling environment for the small and medium-scale businesses to thrive in order to enhance growth.