Bank lending to private sector historically increases N24.45tr

Bank lending to the private sector increases by N4.19tr YoY

By Jeph Ajobaju, Editor-in-Chief

According to the Central Data Bank of Nigeria (CBN).

Bank credit to the private sector has been increasing since June 2021, the latest jump of 68 trillion naira, from 24.38 trillion naira in December 2021 to 24.45 trillion naira in January 2022.

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This was after rising by 366.14 billion naira in December 2021 and 687.95 billion naira in November 2021.

But banks’ exposure to oil and gas industry risk fell to 17.3% in January 2022 from 19.35% in January 2021.

CBN policy facilitates bank credit

Private sector credit is rising thanks to an accommodative policy from the CBN which has kept the benchmark interest rate at 11.5% since October 2020 to stimulate economic activities hampered by Covid which caused two consecutive quarters of GDP contractions .

The CBN’s Monetary Policy Committee (MPC) strategy to keep interest rates low paid off as the economy grew 5.01% in the second quarter of 2021, 4.03% in the third quarter 2021 and 3.98% in the fourth quarter of 2021.

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However, greater economic activities and more currency in circulation combine with other social and infrastructural problems to fuel inflationary pressure. Food inflation is now 17.11% and headline inflation 15.7%.

The MPC for the 10and a back-to-back meeting voted to maintain precaution by keeping interest rates low even though six members backed it and four voted to raise the monetary policy rate (MPR).

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Oil industry

CBN figures show that the downstream oil and gas industry is the biggest beneficiary of bank credit with N4.23 trillion by January 2022, or 17.3% of total private sector credit, according to reports of Nairametry.

Oil is one of the underperforming sectors, recording recurring real GDP contractions over the past seven quarters and an 8.3% year-on-year decline in 2021.

Banks are trying to reduce their lending exposure in oil and gas in Nigeria and the global economy due to volatility in the crude market and decline in the industry.

The oil market has been on an uptrend since 2021, following OPEC+’s strategy to cut supply even before the war between Russia and Ukraine.

Manufacturing and services

The manufacturing sector followed oil with total credit of N4.19 trillion in January 2022, or 17.1% of total private sector credit.

The services sector came third with a loan of N2.38 trillion.

Other sectors

Other sectors that have received bank credit by January 2022 include:

  • Government – N2.34 trillion naira
  • Finance – N1.73 trillion
  • Trade – 1.69 trillion naira
  • Agriculture – N1.46 trillion
  • Upstream Oil and Gas – N1.46 trillion
  • Construction – N1.03 trillion
  • ICT – N952.1 billion

Credit to the manufacturing sector increases

Banks increased their exposure to the manufacturing sector with 1.03 trillion naira to reach a total of 4.18 trillion naira in January 2022, above 3.16 trillion naira in January 2021.

Credit to the manufacturing sector increased to 17.1% in January 2022 from 15.6% in January 2021 and 15.74% in January 2020.

This prompted the sector to grow 3.35% year-on-year in 2021, on a positive trajectory since 2017, with the exception of 2020 which was disrupted by Covid.

More activity in cement, vehicle assembly and food production are some of the factors driving the growth of the manufacturing sector and, by extension, prompting banks to lend to the sector.

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