Nigerian banks have generated approximately N30 trillion in new loans and support for the private sector over a one-year period, demonstrating their pivotal role in the country’s economic renewal efforts.
According to Cordros Securities Weekly Economic and Market Report, recent data from the Central Bank of Nigeria (CBN) shows that credit to the private sector (CPS) increased by 65.9%, or N29.52 trillion, reaching N74.31 trillion in May 2024, compared to N44.79 trillion in the same period of 2023.
This significant growth in lending and support showed the robust balance sheets of Nigerian banks and their responsiveness to the CBN’s directive for increased lending to stimulate economic activity.
CPS encompasses loans, trade credits, and other receivables and support provided by banks to the private sector over a period. It serves as a global measure of the banking sector’s balance sheet strength and its contribution to the national economic agenda.
The analysts at Cordros Securities attributed the increase in CPS in the review period to the deposit Money Banks’ (DMBs) efforts to boost risk asset creation in line with the CBN’s 50.0% Loan-to-Deposit (LDR) and the impact of the naira depreciation on foreign denominated assets.
According to the report on a month-on-month basis, the CPS increased by 1.9% in May (April: +2.4% m/m to NGN72.92 trillion).
In addition, the currency in circulation increased by 56.9% y/y to N3.97 trillion (May 2023: NGN2.53 trillion) while the broad money supply (M3) grew by 78.2% y/y to N99.24 trillion, mirroring the increases observed in M2 (+78.2% y/y) and narrow money (+48.5% y/y).
The analysts noted that over the short to medium term, they think the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks will continue to drive the willingness of commercial banks to create risky assets.
“Nonetheless, we believe that the apex bank’s intensified monetary policy tightening measures could tether the growth of the CPS in the near term,” they said.
CBN Governor, Dr. Olayemi Cardoso, has said recently that 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 a substantial buffer for banks against potential economic challenges but also enhance Nigeria’s bank’s capability to support massive economic growth and play competitively globally.
Mr. Sam Onukwue the Chairman of the Association of Securities Dealing Houses of Nigeria (ASHON) in a chat with Nairametrics on the recapitalization of banks said the Central Bank of Nigeria (CBN), has done the right thing for the banks should compete in the global market, including the African Continental Free Trade Area (AfCFTA).
He noted that with the current inflation rate and exchange rate, it has become almost impossible for banks to operate in line with the global minimum capital threshold without recapitalization.
“Besides, the level of risks which the banks bear today has significantly been exacerbated by the current macro-economic vagaries. I also believe the apex bank is repositioning the banks to be o able to finance the envisaged $1 trillion economy in the next 7-8 years.
In the light of the foregoing, I have no doubt that the apex bank is fair enough to base the new share capital on the level of authorization of each bank,” he said.
