65% LDR raises credit to private sector above N30.56trn in January – CBN
By Kayode Tokede
The Central Bank of Nigeria (CBN) has disclosed that credit to private sector crossed the N30trillion mark to N30.55 trillion in January 2021.
The apex bank in its money and credit statistics disclosed that the N30.56 trillion credit to private sector hits all-time high.
Our correspondent gathered that credit to private sector has gained 14.66per cent Year-on-Year from N26.65trillion reported by the CBN in January 2020.
According to the CBN credit statistics, N30.15trillion was reported as credit to private sector in December 2020, an increase of 13.12per cent from N26.55 trillion reported in January 2020.
The apex bank had stated that the growth in was largely attributed to the Bank’s policy on Loan-to-Deposit Ratio (LDR), complemented by its interventions in various sectors of the economy.
Nigerian NewsDirect gathered that banks operating in the country had significantly increased impairment charges on loans amid the CBN directive to meet the 65 per cent LDR.
Our correspondent gathered that banks were lending to real sector after the federal government ease COVID-19 lockdown and at the same time aggressively going after obligor to recovered loans.
The CBN governor, Mr. Godwin Emefiele in a statement stated that banking sector gross credit as at end-December 2020 stood at N25.02 trillion compared with N24.25 trillion at the end of November 2020, representing an increase of N774.28 billion.
Emefiele at the end of January Monetary Policy Meeting (MPC) stated that “The Committee urged the Bank to sustain its current drive to improve access to credit to the private sector while exploring other complementary initiatives, in collaboration with the Federal Government, to improve funding to critical sectors of the economy.”
He added that, “Given the success recorded under the LDR policy, it thus urged the Bank to sustain its risk surveillance approach and ensure the continued soundness of the banking system.”
Deputy Governor, Corporate Services, CBN, Edward Adamu in his personal statement said, the LDR contributed to Nigeria fast climbing out of recession.
According to him, the economy had been largely insulated from the pandemic shock waves due to some of the policies implemented earlier by the CBN including a benchmark of LDR.
He expressed further that the impact of previous actions of the Committee aimed at supporting the real sector, particularly the LDR and the differentiated cash reserves requirement (DCRR) and the COVID-19 special interventions are getting stronger.
Another member of MPC, Deputy Governor, Financial System Stability, CBN, Aisha Ahmad in her personal statement, said, “The financial system continued to persevere in its resilience, supporting credit to the domestic economy whilst maintaining robust soundness indicators, despite the economic disruption caused by COVID-19.
“Bank staff data indicated that domestic sector credit remained on an upward trajectory (gross credit grew by N4,917.05 billion from N15,567.66 billion at end-May 2019 to N20,484.71 billion as at end-December 2020) with significant increases recorded in manufacturing, agriculture, construction and general commerce – major sectors driving domestic GDP growth.
“The LDR policy has been markedly successful at directing credit to the real economy and should be sustained with a renewed focus on effective utilization, to guarantee expected benefits from supporting businesses, manufacturing capacity and domestic output.”
However, Permanent Secretary, Federal Ministry of Finance, Aliyu Ahmed stated that the private sector credit growth stood at 13.34per cent in December 2020 compared with 10.5per cent in the preceding period – an indication of the efficacy of the Bank’s targeted interventions in the private sector.
“The LDR policy has worked well as total credit increased by N2.91 trillion (16.56per cent) between end-December 2019 and end-December 2020 due mainly to CBN’s directive on LDR which encouraged Deposit Money Banks (DMBs) to lend to different sectors of the economy.
“In view of the uncertainty surrounding the length of the pandemic and given the need to exit recession as quickly as possible, the interventions of the Bank should be enhanced as credit to the private sector is still below its 2020 benchmark,” he said.
Amid growing credit to private sector, our correspondent gathered that loan impairments by banks operating in the country increased significantly in 2020 audited result and accounts.
Responding, the head, Investment research & business Development, Pac holdings, Moses Ojo attributed hike in banks impairment charge to CBN 65 per cent LDR policy that mandate lending to real sector.
According to him, “The situation revealed that banks were following the 65 per cent LDR policy of the CBN.
“The LDR policy has made banks increased lending and at the sometime making provision for bad loans. Banks are under the obligation of meeting the 65 per cent LDR or face sanction. Some banks are granting loans to people who are not qualify for it and they know they might likely default.”
The report by Fitch ratings stated that earnings of these banks are expected to recover gradually with the economy but remain exposed to further economic shocks from oil price volatility.
The report stated that, “Bank asset quality has historically fallen with oil prices; the oil sector represented 28per cent of loans at end-1H20.
“Upstream and midstream segments (nearly seven per cent of gross loans) have been particularly affected by low oil prices and production cuts.”
