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CBN: Consumer credit hits N1.84trn in July

The value of consumer credit in the Nigerian economy increased marginally to N1.842 trillion in July 2021 from N1.840 triilion in June, the Central Bank of Nigeria (CBN) has said. The apex bank, which disclosed this in its monthly economic report for July 2021, released at the weekend, stated that the value represented 8.5 per cent of the total credit to the private sector in the period under review.

It further stated that personal loans accounted for the largest share of 73.6 per cent of the consumer loans, while retail loans made up the balance of 26.4 per cent. According to the report, “the ease in monetary conditions, owing to the accommodative policy stance of the bank, contributed to sustaining the growth of consumer credit. Consumer credit outstanding rose marginally by 0.1 per cent to ₦1,842.55 billion in July 2021 from ₦1,840.24 billion in June 2021.

“This value represents 8.5 per cent of the total credit to the private sector in July 2021. The increase was hinged, mainly, on the decline in prime lending rates, precipitating an increase in the quantum of loans. A breakdown of consumer loans showed that personal loans accounted for the largest share of 73.6 per cent, while retail loans made up the balance of 26.4 per cent.” Noting that key deposit and lending rates trended southward, reflecting liquidity conditions in the banking system during the period, the report said: “Daily inter-bank call and OBB rates stood at 11.6 per cent (±5.5) and 12.1 per cent (±6.2), respectively. Other rates such as the 90- and 30-day NIBOR traded at averages of 13.5 per cent and 12.3 per cent, respectively, compared with 13.81 per cent and 12.6 per cent in the preceeding month.”

It added: “Relative to their levels in the preceding month, average prime and maximum lending rates declined by 0.10 percentage points and 1.06 percentage points to 11.57 per cent and 27.99 per cent, respectively, in July 2021. “Furthermore, the average term-deposit rate tapered by 0.72 percentage points to 4.24 per cent. Consequently, the spread between the average term deposit and maximum lending rates narrowed by 0.33 percentage points to 23.75 per cent in July 2021. Despite the moderation in inflation to 17.38 per cent in July 2021, deposit and prime lending rates remained negative in real terms, while the maximum lending rate was positive.” On credit to the private sector during the period under review (July), the report stated that “credit extended to the private sector increased by 15.7 per cent, leading to a 5.7 per cent rise in domestic claims on the economy.

“The increase in bank credit to the private sector was attributed to an uptick in economic activities, as shown by a rise in both the manufacturing and non-manufacturing Purchasing Managers’ Index (PMI), to 46.6 index points and 44.6 index points at end[1]July 2021, from 45.5 index points and 43.0 index points in June 2021, respectively.” However, apart from the uptick in economic activities, analysts also attribute the increase in bank credit to the private sector to the implementation of CBN’s minimum Loan-to-Deposit Ratio (LDR) policy. As part of its measures to compel deposit money banks to increase lending to the real sector of the economy, CBN had, on July 3, 2019, directed lenders to maintain a minimum LDR (portion of customers’ deposit that is given out as loans) of 60 per cent by September 30, 2019. It stated that failure to comply with the directive will result in a levy of additional Cash Reserve Requirement (CRR) equal to 50 per cent of the lending shortfall of the target LDR.

The apex bank, which had also stated that the LDR would be subject to quarterly review, later raised the LDR target by another 5.0ppts to 65.0per cent and set a compliance deadline of December 31, 2019. Assessing the impact of the LDR policy on the economy in a recent report, analysts at Coronation Research said that efforts by lenders to comply with the rule resulted in banking sector credit to the economy growing from N15.5 trillion at the end of Q2’19 to N22.04 trillion at the end of Q2’21.

The analysts also stated that the implementation of the policy has changed the structure of the economy’s loan composition as Oil & Gas and Real Estate sectors loans now make up much less as a share of total loans compared with prior to the introduction of the LDR directive. They pointed out that “in the six quarters before the directive, aggregate loans were declining by an average of 0.5 per cent every quarter.

However, post-directive, aggregate loan growth has accelerated to an average of 4.5 per cent per quarter.” Although they noted that the low yield environment, following the segregation of the Treasury bills market, may have also contributed to the surge in banking sector credit to the economy-given that this gave lenders an incentive to create risk assets to increase profits-the analysts asserted that “overall, on the credit growth front, it can be said that this (LDR directive) was an easy policy win.”

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