Eromosele Abiodun and Darasimi Adebisi
With a large percentage granted to large companies, multinationals and high-end medium-sized enterprises and without noticeable impact on the real sector, which concerns production, purchases, flows of goods and services, credit to the private sector maintains a bullish momentum in the first seven months of the year.
According to monetary and credit statistics from the Central Bank of Nigeria (CBN), credit to the private sector increased 6.68%, from 30.65 trillion naira in January to 32.8 trillion naira in July 2021.
But analysts said the increase in the private sector had not manifested itself in an increase in output, lower inflation, lower interest rates, an improvement in the Managers’ Index. purchase and stock market performance as well as job creation opportunities.
While calling the growth of credit to the private sector commendable, analysts stressed that the impact would depend on sector allocation, credit quality, duration of funds and interest rate.
Meanwhile, CBN currency and credit statistics revealed that credit to the private sector crossed the 32 trillion naira mark in May and since then has maintained growth.
According to the CBN, credit to the government increased 5.3 percent to 12.13 trillion naira in July, from 11.52 trillion naira in June.
Analysis of CBN figures showed that credit to the private sector in the seven months of 2021 appreciated by 2.19 trillion naira, a development some analysts said showed that deposit banks supported the umbrella bank in real sector lending and job creation.
Further analysis of CBN credit statistics revealed that credit to the private sector peaked at N30.19 trillion in July 2021 amid the ease of the COVID-19 lockdown.
According to CBN statistics, the money supply (M3) rose to 39.79 trillion naira in July, from 38.78 trillion naira in January 2021, while the narrow currency increased by 2.15%, passing from N15.95 trillion in January to N16.29 trillion in July.
A closer look at CBN statistics showed that net domestic assets (NDA) reached N44.97 trillion in July, a five percent increase from N42.9 trillion in January of this year. .
Some analysts have argued that banks lending to the real sector have played a pivotal role in Nigeria’s recent gross domestic product (GDP) increase.
The National Bureau of Statistics (NBS) reported last week that Nigeria’s real GDP growth for the second quarter (Q2) of 2021 was 5.01% year-on-year increase.
Announcing the GDP figures, the bureau said, “The year-over-year performance was mainly supported by the non-oil GDP component, as it grew 6.7% year-on-year compared to the contraction of 6.1. % year-on-year in Q2: 2020. This is explained by the strong growth recorded in the business sectors of trade (22.5% yoy), transport and storage (76.8% yoy) and manufacturing (3.5% yoy. ) in a context of complete reopening of the economy.
Commenting on the impact of private sector lending to small and medium-sized enterprises (SMEs), Head, Retail Investment, Chapel Hill Denham, Mr. Ayodeji Ebo felt that there had been no major credit for SMEs in outside of government intervention.
Ebo said banks were lending towards government bonds, and commercial papers and business loans had recently increased.
For his part, an economist and private sector advocate, Dr Muda Yusuf said that the growth of credit to the private sector is commendable, stressing that the impact would depend on sectoral distribution, credit quality, duration of loans. funds and interest rate.
He further explained that: “The CBN has made a lot of agricultural loans, but the quality of the loans is an issue. Reports indicate high default rates in agricultural credit, especially the regime of key borrowers.
“Monetary intervention is imperative for a real development of the sector. But this is not enough to guarantee the desired results of growth and productivity. The context in which businesses operate is as important, if not more, than financing.
“The whole investment environment must be adapted so that the sustainable development of the real sector can be achieved. Therefore, to complement credit to the private sector, other factors that need to be taken into account include the quality of infrastructure, especially electricity, roads and railways.
He added, “There are also issues regarding the quality of the regulatory environment, the exchange policy regime, the port situation, the volatility of the naira exchange rate, the fiscal environment and the security situation. These are not things that monetary intervention can solve. It takes a hard-hitting fiscal policy intervention to resolve these issues.
“Some of the problems relate to the economic reforms that need to be put in place. Commitments between private sector stakeholders and policy makers are essential to achieve sustainable development of the economy.
Speaking from a different perspective, Association of Capital Market Academics of Nigeria (ACMAN) President Professor Uche Uwaleke said the increase had no noticeable impact on the real sector, which is about production. , the purchase, the flow of goods and services.
He said that “although the inflation rate in June declined slightly, the available evidence on other measures shows no significant impact of increased private sector lending on the economy.”
He suggested that “for the impact to be noticeable, it must be sustained and intensified, particularly targeting critical sectors of the economy with potential for job creation such as SMEs”.
CBN Governor Godwin Emefiele, in his statement at the end of the July Monetary Policy Committee (MPC) meeting, said the committee noted broad M3 had fallen to 2.02% in June 2021, compared to 2.99% in May 2021.
According to the boss of CBN, “This development was largely driven by a slowdown in the growth rate of net national assets (NDA) and net foreign assets (NFA). Net foreign assets contracted by 3.65 percent due to the contraction in foreign assets of the central bank, as well as interest-free banks, mortgage credit and microfinance. The marginal decline in net domestic assets reflects the slowdown in aggregate net credit, which fell to 4.30% in June 2021, from 4.79% in May 2021. “
A member of the MPC and the deputy governor for operations at the CBN, Folashodun Shonubi, said in a statement: “The growth of credit to the government and credit to the private sector reflects the impact of various measures taken by the CBN to promote flows to stimulate economic activities.
Shonubi added that: “I believe CBN interventions through aggressive credit offering should continue to complement the tax authority’s ongoing efforts to stimulate economic activity.
“As the government acts more decisively to deter bad behavior and restore order, we must work collectively to overcome the challenges of insecurity. At the same time, we need to start tightening to deal with the subtle monetary component of inflationary pressures and curb runaway inflation, without stifling economic growth. “
The umbrella bank in its statistics also revealed that the currency in circulation rose nearly 3% to 2.81 trillion naira in July from 2.74 trillion naira in June.
The CBN defined the currency in circulation as the currency outside the coffers of the umbrella bank; that is, any currency which is legal tender in the hands of the general public and in the coffers of deposit banks.
Pac Holdings’ head of investment research and business development Moses Ojo attributed the rise in the currency in circulation to the monthly federal allocation to the state government.