By Kayode Tokede
With growing credit to the real sector, the Central Bank of Nigeria (CBN) has disclosed that financial system total assets increased to N53.17trillion in April 2021.
The Deputy Governor, Financial System Stability, CBN Aishah Ahmad, in her personal statement at the end of Monetary Policy Committee (MPC) meeting held in May disclosed that “financial system continued to record strong growth with total asset increasing by N6.97 trillion from N46.20 trillion to N53.17 trillion between April 2020 and April 2021, driven mainly by increase in credit.
According to her, the total credit increased by N2.84 trillion or 15.26 percent between end April 2020 and end-April 2021, largely due to CBN’s Loan to Deposit Ratio (LDR) policy and increased credit demand by businesses and households as economic activities picked up following the lifting of COVID-19 restrictions.
She noted that sectors powering output growth in the economy (manufacturing, agriculture, construction, general commerce and information & communication) attracted increased lending from the banking sector during the period under review.
She acknowledged the positive impact that the CBN’s development finance initiatives have had on output growth and employment generation in the domestic economy.
She also disclosed that the CBN increased its development finance interventions by 56.21 per cent to N234.14 billion in April 2021 from N149.89 billion in January 2021 to further catalyze growth stimulating sectors of the Nigerian real economy.
According to her, It is also envisaged that government’s efforts at addressing insecurity will yield expected results and thus further moderate inflationary pressures.
Ahmad stated that macroprudential risk reviews remain paramount in the view of the restructured industry credit portfolios.
She explained that, “Stress test results in this respect also showed that industry solvency and liquidity positions were at comfortable levels and could withstand mild to moderate shocks in the short to medium term.
“Whilst noting the positive performance of the financial system, the Bank must remain vigilant to identify and proactively manage possible downside risks to financial stability arising from credit default risk.
“The regulatory authorities must also enhance micro and macroprudential policy tool kits for managing the stability of the system, while the sector continues to build adequate buffers to be in a vantage position to withstand and manage possible headwinds.”
Another member of MPC, the Deputy Governor, Operations, CBN, Folashodun Shonubi said the financial sector continued to show resilience and much-needed support for the economy. In terms of size, industry total asset and credit by the banking sector rose further at end-April 2021, though aggregate deposit declined marginally.
He noted that the financial industry liquidity and capital adequacy ratios remained above the regulatory minimum, while the non-performing loan ratio improved marginally to 5.9 percent, though it was above the prudential maximum of 5.0 percent.
He expressed that, “Despite being challenged by low foreign exchange revenue from exports and reduced capital flows, marginal overall balance of payments surplus and generally adequate foreign reserves level provided some respite in the external sector.
“Federal Government retained revenue increased slightly in April 2021, while expenditure reduced, due to decline in mainly personnel cost. Though fiscal deficit contracted, it remained above the budget benchmark.”
Another member, Professor of Economics, University of Ibadan, Festus Adenikinju, raised concerns that economic recovery rate is still very weak and fragile, stressing that poverty and unemployment rates are still quite high.
In his words, “The security situation in the country is hurting economic recovery, while at the same time, poverty and unemployment also contributes to the worsening security challenge we have.
“As we enter another planting season, the effect of climate change may have negative impacts on food prices in later part of the year. The current efforts of the CBN to promote dry season agriculture would be quite helpful.”
He expressed on the need for timely and orderly withdrawal of forbearance on loan restructuring granted to the banking sector.
He added that, “The growth in aggregate credit indicates that the CBN policy on Loan-to-Deposit Ratio (LDR) is working, and defaulting banks should be encouraged to keep to the LDR.
“The various intervention programmes of the CBN are already providing strong support for the youths, women, and those who could not readily access formal credit market. Lending to households increased from N1.17 trillion in Q1 2020 to N1.22 trillion in Q1, 2021.
“There is need to expand the Targeted Credit Facility (TCF) and the Agri-Business/Small and Medium Enterprises Investment Scheme (AGSMEIS) to ensure more Nigerians benefit from the programme.
“In addition, regular evaluation of the programmes is necessary to ensure they meet their objectives.”