Credit to private sector adds N296.8bn — CBN

..Increase caused by inflation, naira depreciation — Former CIBN president

…No noticeable impact on real sector — Prof Uwaleke

…Increase resulting from crippled economy caused by insecurity — Analyst

…Net Domestic Credit hits N44.7trn

By Ogaga Ariemu, Abuja

Amid banks lending to real sector, the Central Bank of  Nigeria (CBN) has disclosed that credit to private sector gained N296.8billion to close at N32.2trillion in May 2021.

Credit to private sector by CBN in May rose to highest on the heels of CBN introduction of policies to drive banks lending to real sector.

Nigerian NewsDirect can report that the N32.2trillion credit to private represents an increase of 0.93 per cent in month-on-month performance and 5.06 per cent Year-till-date performance.

The data showed that credit to private sector in January 2021 was N30.65trillion but dropped by 0.47 per cent to N30.50trillion in February. Between March and April, credit to private sector moved from N31.4trillion to N31.82trillion respectively.

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.

Banks operating in the country maintained drive to improve access to credit to the private sector, while exploring other initiatives with the fiscal authorities to improve funding to critical sectors of the economy.

Analysts expressed that the apex bank 65 per cent Loan-to-Deposit (LDR) impacted positively on credit to private sector and drive Gross Domestic Product (GDP).

Reactions from analysts revealed that the increase in bank’s lending rate to private sector by was necessitated by cost-push-inflation, depreciation of the value of naira, crippled economy caused by insecurity and may not impact the real sector.

Speaking with Nigerian NewsDirect, the former President/Chairman of Council of the Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola said the impact cannot be felt in the real sector except 90-180 days waiting period elapsed.

According to him, “We cannot feel the impact immediately until the waiting period of about 90-day to 180-day has elapsed.

“There is increase in the nominal figure of lending, due to the apex bank’s increase in interventions to private sector.”

However, he stated there is need to go beyond the nominal analysis into the real analysis.

He revealed that increase is induced by inflation due to increase in the cost of production and fail in the value of Naira.

In his words, “The only thing I want us to realize is that it takes a circle for the impact of bank loan to be felt to the real sector and the public as a whole.

“You know there is always a waiting period which in a technical language it is referred to as cash-conversion-circle or production conversion circle.

“What do we mean by that is that if a typical company borrows from a bank today in the Manufacturing sector, that Money is applied in so many ways.

“For example, a loan you take to increase your capacity. You buy plant and machinery; you may not get the plant and machinery in less than 6months or one year.

“So you will not see the impact of increase in one year.

“If it is working capital like you are borrowing to import or buy raw materials and so on, you first of all wait for the materials to arrived; you go into production and then sales so it takes a circle of about 90 days or 180 days in some case for you to feel the impact.

“However there is a rider to it as we hope the increase is not to finance inflation because what we are going through in Nigeria today is Cost-push-inflation.

“So the real sector needs more money even to finance the same level output, because prices of raw materials have go up.

“Due to general inflation which is close 20 per cent as at today and also due to depreciation in the value of Naira which has necessitated increase in Naira to Dollar rate.

“So a typical Manufacturer now needs more naira to finance the same level of output. So if the increase has been influenced by Cost-Push-Inflation, then we may not see impact in the real sector or the impact will be minimal if any.”

Speaking from a different perspective, the President, Association of Capital Market Academics of Nigeria (ACMAN), Prof Uche Uwaleke said the increase has no noticeable impact on the real sector which concerns the production, purchase, flow of goods and services.

He noted that, “Increase in private sector lending is expected to manifest in increased output, lower inflation, lower interest rates, improved Purchasing Managers Index and stock market performance as well as job creation opportunities.

“While inflation rate in June trended marginally downward, available evidence regarding the other metrics does not indicate any significant impact of the increase in private sector lending on the economy.”

He suggested that “for impact to be noticeable, it needs to be sustained and scaled up, especially targeting critical sectors of the economy with job creation potentials such as SMEs.”

The Vice Chairman, Highcap Securities, Mr David Adonri, revealed that lending to private sector increased because of crippled economy caused by the insecurity and increased importation.

According to him, “The increase in credit by banks to the private sector in May 2021 is not surprising. The domestic economy has been gathering momentum since beginning of the year when Nigeria exited recession.

“As a result, enterprises needed more funds to repair damage to their balance sheets and expand operations.

“To address the short term imbalance caused by the pandemic, working capital finance became handy for businesses.

“Traditionally, banks provide short term credits to finance working capital. This important support has been vital in enhancing productivity as reflected in vastly improved macroeconomic conditions in Nigeria.

“It is also possible that the huge increase in importation, due to crippling impact of insecurity, may have abnormally increased the demand for bank credit this year. However, excessive credit creation must be avoided to protect value of the Naira.

Responding also, analyst at PAC Holdings, Mr. Wole Adeyeye said, “The improved banks credit to private sector has positive impacts on the performance of SMEs as many of them have access to credit to support their businesses.

“This might be one of the factors that contributed to GDP growth rate of 0.51per cent in the first quarter of 2021, when Banks Credit to Nigeria’s private sector increased by N1.29 trillion.

“In our own opinion, the improved credit to private sector is expected to have positive impact on jobs creation in many sectors of the economy.”

The CBN governor, Mr. Godwin Emefiele in his personal statement at the end of second Monetary Policy Committee (MPC) of March 2021 said the members observed growth in private sector credits over various interventions amid at spurring aggregate demand, stimulating output, and de-risking the productive activities.

According to him, “Regardless of the increase in credit, the banking system remained relatively resilient with industry averages of the CAR at 15.2 per cent, NPLs ratio at 6.3 per cent, and liquidity ratio at 40.5 per cent.

“The Bank will sustain its regulatory measures to foster banking system stability. We will also continue to use all means available to us to engage and encourage banks to increase credit to the productive private sector.”

A member of the MPC, the Deputy Governor, Operations, CBN, Folashodun Shonubi, in a statement said, “Growth in credit to the Government and credit to private sector reflected impact of various measures by the Bank to promote flow of credit to drive economic activities.”

Shonubi added that “I believe the Bank’s interventions through aggressive provision of credit should continue as a complement to ongoing effort by the fiscal authority to boost economic activities.

“As the Government acts more decisively to discourage bad behaviour and restore orderliness, we must collectively work to overcome the insecurity challenges.

“At the same time, we must begin to tighten to deal with the subtle monetary component of inflationary pressure and curb spiraling inflation, without suffocating economic growth.”

The apex bank in its statistics also disclosed that net domestic credit rose by 1.46 per cent to N44.7trillion in May from N44.1trillion reported in April.

The data by CBN showed that banking system credit to the economy increased by 0.40 per cent to N43.13 trillion in February 2021 from N42.95 trillion in January 2021, reflecting the ongoing broad-based monetary and fiscal stimulus to various sectors of the economy.

In March, the CBN reported N43.44trillion and N44.06trillion net domestic credit reported in April.