New Telegraph

CBN keeps focus on credit growth to propel economy

Despite paying a attention to curbing soaring inflation, the Central Bank of Nigeria (CBN) is focused on pushing credit growth, as part of efforts to build a sustainable economic recovery, writes Tony Chukwunyem

In the communique issued at the end of its final meeting of the year held last month, the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) said: “Data from National Bureau of Statistics (NBS) on Real Gross Domestic Product (GDP) showed that it grew by 3.54 per cent (year-on-year) in the second quarter of 2022 and 5.01 per cent in the corresponding period of 2021. “The economy has thus, sustained positive output growth for seven consecutive quarters, following the exit from recession in 2020. The consistent positive performance recorded was driven largely by the positive growth in the non-oil sector, particularly in the services and agricultural subsectors, complemented by continued policy support by the bank. “CBN Staff projections showed that the economy is expected to remain on a path of sustained positive growth, given the expected strong performance in the fourth quarter of 2022 and steady rebound in economic activities.” Although members of the MPC, according to the communique, expressed concern over the persistent rise in inflation, they said that, given that the country’s external reserves decreased by 1.34 per cent at end-October 2022 to $36.87 billion, from $37.39 billion at end-September 2022, as well as forecasts of lower crude oil prices, the apex bank should sustain its intervention policies to boost nonoil exports as part of measures to boost the external reserves. Indeed, the November 2022 MPC communique like previous ones in recent times also gave an update on disbursements under some of the CBN’s key intervention programmes.

Intervention scheme disbursements

Thus, it stated: “Between September and October 2022, under the Anchor Borrowers’ Programme (ABP), the bank disbursed N41.02 billion to several agricultural projects, bringing the cumulative disbursement under the Programme to N1,067.29 billion to over 4.6 million smallholder farmers cultivating 21 commodities across the country. “The bank also disbursed N0.30 billion to finance large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS). Consequently, the total disbursement under the Scheme for agro-production and agro-processing stands at N745.31 billion for 680 projects. “In addition, the bank released the sum of N48.30 billion under the N1.0 trillion Real Sector Facility to seven new real sector projects in agriculture, manufacturing, and services. Cumulative disbursement under this Facility currently stands at N2.15 trillion to 437 projects across the country, comprising projects in manufacturing (240), agriculture (91), services (93) and mining sector (13). “Furthermore, under the 100 for 100 Policy on Production and Productivity (PPP), the Bank disbursed the sum of N20.78 billion to nine projects in healthcare, manufacturing, and services. The cumulative disbursement under the Facility therefore, amounted to N114.17 billion in 71 projects. “Moreover, the bank disbursed N4.00 billion under the Intervention Facility for the National Gas Expansion Programme (IFNGEP) to promote the adoption of compressed natural gas (CNG) for transportation and liquefied petroleum gas (LPG) for cooking. “In support of the resilience of the healthcare sector, the bank also disbursed N5.02 billion to four healthcare projects under the Healthcare Sector Intervention Facility (HSIF), bringing the cumulative disbursement to N135.56 billion for 135 projects in pharmaceuticals (33), hospitals (60) and other services (42).”

Rising net credit to economy

New Telegraph’s analysis of the CBN’s latest “Money and Credit Statistics” report, also shows that banks’ net credit to the economy rose by 33.45 per cent (N15.91trillion) to N63.48 trillion as of October 2022, compared with N47.57triilion in the corresponding period of last year. Specifically, the data shows that the net domestic credit comprises N40.80 trillion banks’ credit to the private sector and N22.68trillion credit to government. The data further indicates that banking sector credit to the private sector in October increased by N6.18trillion or 17.85 per cent from N34.62trillion in the corresponding period of last year. Similarly, when compared with the figure for September 2022 (N40.50trillion), banking sector credit to the private sector in October increased by N294.93billion or 0.73 per cent, according to the CBN report. In addition, the CBN report shows that net credit to government rose by N973trillion or 75.17per cent to N22.68trillion in October this year from N12.95trillion in the corresponding period of 2021. Analysts note that the regulator’s development finance initiatives and policies, which are aimed at encouraging Deposit Money Banks (DMBs) to increase lending to the private sector, have ensured that total credit to the private sector of the economy has been on an upward trend since February last year when it stood at N30.51trillion.

LDR policy

Analysts particularly cite the minimum Loan-to-Deposit Ratio (LDR) policy, introduced by the CBN on July 3, 2019, to compelDMBs to increase lending to the private sector. The policy required lenders to maintain a minimum LDR (portion of customers’ deposit that is given out as loans) of 65 per cent by December 31, 2019. The CBN 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. In a report released last year, analysts at Coronation Research said that efforts by DMBs in the country to comply with the LDR policy resulted in banking sector credit to the economy growing from N15.5trillion at the end of Q2 ‘2019 to N22.04trillion at the end of Q2’ 2021. According to the report, the introduction of the policy has also 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 than before the directive. Also commenting on the surge in banking credit to the private sector, analysts at CSL Research, stated: “The real sector has largely benefitted from the CBN’s sustained monetary stimulus evidenced by the fact that the economy has returned to growth and the government’s fiscal position has increased through improved Company Income Tax (+20.1% y/y in 9M 2021) and VAT collections (+40.2% y/y in 9M 2021) arising from recovery in economic activities. “The expansion in private sector credit reflects the CBN’s continued efforts to revive the ailing economy. The CBN has been relatively successful at supporting output recovery. One, thus far in 2021, the apex bank has maintained the benchmark Monetary Policy Rate (MPR) at 11.5 per cent, avoiding any further tightening that could stifle credit growth, while a huge proportion of the credit was towards sectors such as agriculture, oil & gas, and manufacturing sectors, the Non-Performing Loan (NPL) ratio of Deposit Money Banks (DMBs) have remained moderate as CBN allowed banks to restructure loans to the strained sectors.” The analysts further stated: “Increasing oil prices have also been supportive as many of the restructured loans to the oil and gas sector have been reported to be meeting the new terms. That said, lower yields on investment securities have forced many banks to increase lending to the real sector of the economy.” “The sustained credit to the economy has been a valuable stimulus tool. However, the agelong structural bottlenecks that have affected growth remain a problem,” they added.

Outlook

New Telegraph reports that while unveiling the CBN’s outlook and policy thrust for 2023 in his address at the 57th Chartered Institute of Bankers of Nigeria’s (CIBN) annual bankers’ dinner, which held in Lagos, on November 25, the apex bank Governor, Mr. Godwin Emefiele, said that while the International Monetary Fund (IMF) projects that more than a third of the global economies will suffer a recession within the next two years, especially as the US, EU and Chinese economies stagnate: “The CBN is of the view that the short-term outlook of the Nigerian economy remains good.” According to him, “based on the expectation of a robust non-oil performance, and barring any unforeseen shocks, GDP growth rate is projected to remain positive in the remaining quarter of 2022 and during 2023. “The performance of the nonoil sector will be buoyed by the continued efforts at entrenching indigenous productivity in highimpact real sector activities, especially agriculture, MSMEs, and manufacturing. “Domestic aggregate demand is further expected to be bolstered by the anticipated budgetary outlay and the surge of electioneering spending in the next few months. From 3.54 percent in quarter two of 2022, growth is projected to reach 3.7 percent in quarter three and 3.47 by the fourth quarter.”

Conclusion

However, the consensus in industry circles is that while the CBN’s policies, aimed at boosting credit to the private sector, are helping to build a sustainable economic recovery, the country’s GDP numbers may continue to lag in expectations unless the fiscal authorities tackle the wellknown structural issues hindering growth.

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