Nigeria’s credit to the private sector has seen a sharp decline of approximately N9.65 trillion from February to March 2024.
This decline underlines the Central Bank of Nigeria’s (CBN) hawkish stance aimed at curbing inflation and stabilizing the economy.
Private sector funding slumps
The credit and monetary statistics data from the CBN indicates a 12% month-on-month decrease in credit allocation to the private sector, with the figures dropping from N80.86 trillion in February to N71.21 trillion in March 2024.
This significant reduction follows a period of robust growth, where credit to the private sector had escalated by 66% compared to the same period in 2023.
January 2024 started on a high note as credit reached N76.29 trillion, up significantly from N41.54 trillion in January 2023. This upward trend continued into February when it peaked at N80.86 trillion.
The CBN’s tightened monetary policies appear to be a direct response to global economic pressures and domestic inflationary concerns, signaling a strategic pullback from the expansive credit flows under the leadership of the former governor, Godwin Emefiele.
Impact on government borrowing
Parallel to the contraction in private sector credit, the government sector also experienced a downturn in credit influx. Credit extended to the government fell drastically by 42% in just one month, plummeting from N33.93 trillion in February to N19.59 trillion in March 2024. This decline marks a significant shift from the previous year, reflecting a 29% decrease compared to the year 2023.
January 2024 saw government credit at N36.18 trillion, up from N26.64 trillion in January 2023, showing an initial increase. However, subsequent months witnessed variable reductions, culminating in the substantial drop observed in March.
This contraction is expected as the CBN Governor, Olayemi Cardoso, recently said that the apex bank will no longer give Ways and Means to the Federal Government until the previous loans are repaid.
The CBN governor’s assertion was made after an increase of N3.8 trillion in what appears to be fresh Ways and Means Borrowing in the last six months of 2023.
What you should know
- Late last year, the CBN announced a suspension of new loan applications under its Intervention Programme. The suspension represents a significant shift in its approach to development finance intervention funds, which was the cornerstone of the previous central bank.
- Recently, the CBN issued a new directive to all Deposit Money Banks (DMBs) introducing a reduction in the loan-to-deposit ratio (LDR) to 50%. The change is a strategic move aligning with the CBN’s recent shift towards a more contractionary monetary approach, in sync with heightened Cash Reserve Ratio (CRR) requirements, which have been raised to 45% for DMBs and 14% for merchant banks.
- The contraction in credit both to the private sector and government suggests a tightening of fiscal policy by the CBN, likely in response to macroeconomic variables including inflation rates and external economic pressures.
- This contractionary approach might help in tempering inflation but could also slow down economic growth as both sectors experience reduced financial inflows, potentially affecting public projects and private investments alike.
- The Acting Director, of the Banking Supervision Department of the Central Bank of Nigeria (CBN), Dr Adetona Adedeji, recently affirmed the bank’s decision to prioritize combating inflation over tackling rising unemployment rates.
