By Chinwendu Obienyi
The total amount of loans given to the Nigerian organised private sector by the banking industry rose to N43 trillion in the first three months (Q1) of 2023.
This is according to data obtained from the Central Bank of Nigeria (CBN)’s website.
Credit to the private sector includes consumer loans, small business loans, commercial loans, structured finance, trade finance, mortgages, and all others issued to businesses and individuals.
Despite the CBN’s policies targeted at reducing the amount of cash in circulation, commercial banks have rather stepped up their lending to the sector to create more wealth and help the sector expand its capacity.
The CBN had raised interest rates in the last five monetary policy meetings, citing galloping inflation and the need to contain money supply.
However, data for March 2023 suggests that financial institutions gave out more credit to the private sector in the month under review.
For instance, loans issued to the private sector increased by N1.3 trillion to reach N43 trillion in Q1 2023. In contrast, total credit to the government fell slightly from N28.4 trillion to N27.5 trillion or N900 billion. This is also the second-largest drop in credit to the private sector since 2020.
According to some analysts , the increase in lending to the private sector suggests that Nigerian banks are willing to take risks and invest in the economy despite the CBN’s measures to reduce cash circulation and control inflation. The lenders appeared to have also shrugged off the uncertainties in the political environment to support the Nigerian private sector.
They noted that this could help spur economic growth by providing businesses with the capital they need to invest in expansion, hire more workers, and increase productivity.
However some economic experts expect a slower GDP growth rate in Q1 2023, mostly due to the impact of the old naira note crisis. The increase in credit to the private sector also explains why the apex bank’s data on money supply showed it rose yet again to N51.1 trillion, yet another record for the CBN under Godwin Emefiele’s administration.
Reacting to the decrease recorded in lending to the government, some analysts believe this could have negative implications.
“The government relies on loans to fund its operations and investments in infrastructure, healthcare, education, and other critical sectors, especially as it continues to face fiscal challenges.
“If the decline in government credit continues, it could lead to a reduction in public spending, which could stifle economic growth and hurt the standard of living for many Nigerians. Suppliers to the government may have experienced delayed payments due to the credit crunch faced by the government,” analysts at Nairametrics said.
Also speaking on the data, the Managing Director, Highcap Securities, David Adonri, said, “The development at the moment suggests a delicate balancing act for the CBN. While it is important to control inflation and reduce cash circulation, the incoming government (policy-makers) must also ensure that there is sufficient credit available to both the private sector and the government to support economic growth and development.”