Bank credit to private sector increases as economy recovers

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Monday, November 01, 2021 / 12:45 PM / by CSL Research / Header Image Credit: CSL Stockbroking

The need to improve lending to the private sector cannot be overstated in the context of pandemic-induced economic shocks to many sectors of the economy. Interestingly, recent money and credit statistics released by the Central Bank of Nigeria (CBN) showed a 1.3% m/m increase in credit to the private sector, reaching a peak of 33.8 billion naira in September 2021 compared to 33.4 billion naira in August. In the same vein, on a y/y basis, credit to the private sector increased by 13.8% y/y from 29.7 billion naira in September 2020. Other information also revealed that credit to government rose 2.9% m/m and 34.6% y/y to N13.0tn in September from N12.7tn in August 2021 and N9.7tn in September 2020.


The m/m and y/y expansion in credit to the private sector reflects the CBN’s continued efforts to revive the struggling economy. The CBN has been relatively successful in supporting the resumption of production. First, so far in 2021, the apex bank has kept the benchmark monetary policy rate (MPR) at 11.5%, avoiding any further tightening that could stifle credit growth. While much of the credit went to sectors such as agriculture, oil and gas. , and manufacturing sectors, the non-performing loan (NPL) ratio of depository banks (DMB) remained subdued as the CBN allowed banks to restructure lending to troubled sectors.

Rising oil prices were also supportive as many of the restructured loans to the oil and gas sector were reported to meet the new terms. That said, declining investment security yields have forced many banks to increase their lending to the real sector of the economy. In the 9 months of 2021, based on reported figures, Zenith Bank recorded net loan growth of 8.7% compared to December 2020. Also, Access (+16.4%), UBA (+12 .4%), GTCO (+4.5%), Stanbic (+31.5%) and Sterling (+13.4%) recorded net loan growth compared to December 2020.

A few sectors in Nigeria are showing signs of recovery, as evidenced by GDP growth of 5.0% in the second quarter of 2021. Although the base effect in the non-oil sector contributed to growth in the second quarter, some sectors experienced a resumption of activity. However, we note that structural bottlenecks in the operating environment, coupled with the weak fiscal position, will continue to limit the effectiveness of monetary policy tools to achieve the necessary inclusive economic growth.

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