Experts project private sector credit growth in short term

By Chinwendu Obienyi

Economic experts have projected that in the short term, credit to the private sector (CPS) is expected to continue expanding due to the Central Bank of Nigeria (CBN)’s strict enforcement of the loans-to-deposits ratio (LDR).

They added that this policy encourages commercial banks to increase lending and create risk assets.

This is coming after data sourced from the CBN revealed that CPS grew by 27.3% year-on-year (y/y) to N75.96 trillion in November 2024, compared to N59.69 trillion in November 2023, reflecting the impact of CBN’s enforcement of a 50% loan-to-deposit ratio, as well as the currency depreciation’s conversion effect on banks’ foreign-denominated assets.

This suggests that lending or financial credit provided to private businesses and individuals by banks and other financial institutions is forecasted to grow within a relatively brief time frame.

Similarly, credit to the government surged to a record high of N39.62 trillion in November, representing a 54.4% y/y increase from N25.66 trillion in November 2023, indicating increased government borrowings from domestic banks for deficit financing.

Broad money supply (M3) followed a similar upward trajectory, growing by 51.3% y/y to N108.97 trillion. This growth was driven by a substantial increase in quasi-money (+61.3% y/y) and narrow money supply (+38.0% y/y). Month-on-month (m/m), CPS rose by 2.5% in November, recovering from a decline of -2.3% in October.

Hence, analysts at Cordros Research, noted that they expect the CPS to continue expanding in the short term.

“We believe the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks (DMBs) will continue to drive the willingness of commercial banks to create risk assets. Nonetheless, we acknowledge that the increased monetary policy tightening measures may tether CPS growth”, they said.

This trend reflects the ongoing balancing act between regulatory measures that incentivize lending and macroeconomic conditions that could constrain credit growth.