- N20.3tr added in one year
Banks’ credits to the private sector rose by N20.31 trillion to N73.12 trillion in first half 2024 as they continued to deploy additional deposits to fund businesses across sectors of the economy.
Latest data from the Central Bank of Nigeria (CBN) indicated that credit to the private sector (CPS) rose by N20.31 trillion or 38.5 per cent to N73.12 trillion by June 2024 compared with N52.81 trillion recorded in comparable period of 2023.
The CPS includes loans, trade credits and other account receivables and supports provided by banks to the private sector within a period. The CPS is a global measure of the banking sector’s balance sheet resilience and contribution to national economic agenda.
Nearly all banks had seen significant increases in deposits in recent period, providing the headroom for most banks to create new loans and advances.
Total deposits in the banking sector had risen by 63 per cent from about N70.5 trillion in 2022 to about N115 trillion in 2023.
The growth in lending and supports to the private sector underlined the resilient balance sheet of banks and banks’ response to the apex bank’s push for increased lending to bolster economic activities.
The data illustrate the importance of the banking sector emerging as the backbone of the country’s economic renewal agenda.
A month-on-month breakdown however showed a marginal decline of 1.6 per cent from N74.31 trillion in May 2024 to N73.12 trillion in June 2024. Experts attributed the decline to the impact of Central Bank of Nigeria (CBN)’s monetary tightening stance in the quest to rein in rising inflation.
Banks’ lending and supports to the private sector had risen from N71.21 trillion in March 2024 to N72.92 trillion in April and topped N74.31 trillion in May 2024, representing a month-on-month increase of 1.9 per cent and 2.4 per cent for May and April 2024 respectively.
Banks’ operational reports had shown significant growths in deposits in 2023. For instance, audited reports for the year ended December 31, 2023 showed that Access Holdings’ deposits rose from N6.10 trillion in 2022 to N9.4 trillion in 2023. Zenith Bank grew deposits from N5.86 trillion to N11.43 trillion. FBN Holdings recorded deposits of N7.85 trillion in 2023 as against N5.25 trillion in 2022. United Bank for Africa (UBA)’s deposits doubled from N4.83 trillion in 2022 to N9.32 trillion in 2023. Guaranty Trust Holding Company’s deposits increased from N3.47 trillion to N5.22 trillion.
A recent report on capital importation into the country had shown that banks attracted nearly two-third of capital importation into the country. Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually take more active stance in the nation’s economy.
Experts agreed that increase private sector credit implies a major boost for the economy as there is a link between credit to the private sector and the economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in Gross Domestic Products (GDP).
Experts at Cordros Capital said they expected the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for Deposit Money Banks (DMBs) to continue to drive the willingness of commercial banks to create risk assets.
A study published by the CBN concluded that “credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.” The study found that private sector credit increases economic growth.
The balance sheet strength of banks also determine the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.
In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.
The study found that “banks with strong balance sheets were better able to maintain lending during the crisis”.
According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.
“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.
Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the growth in credit to the private sector could be attributable to increase in economic activity.
He however pointed out that other factors such as inflation and devaluation could moderate such increase
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said the credit outlook remains cautious, calling for expansive distribution of credits across all tiers of companies and sectors.
According to him, there are major concerns in terms of distribution of credits across sectors and companies with small businesses, which contribute more to job creation and economic inclusion, not likely to benefit much.
He noted that banks tend to be wary of credit risk concerns associated with lending to small businesses and certain sectors, adding that efforts should be made to drive inclusive and stable credit access to all sectors including growth and employment elastic sectors such as agriculture, manufacturing, real estate, mining and construction among others.
CBN Governor, Dr. Olayemi Cardoso, has said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.
According to him, additional capital would not only provide substantial buffer for banks against potential economic challenges, but enhance Nigeria’s banks capability to support massive economic growth and play competitively globally.
Experts agreed that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions.