Efforts of the Central Bank to increase lending to the economy recorded a boost in 2023 as credit from banks to businesses increased to about N62.5 trillion as of December 2023, representing an increase of 49.6 percent year-on-year.
‘’The data for the year 2023 recorded a notable improvement in the total credit to the private sector, which stood at N62.52 trillion as of December 2023. This indicates a substantial year-on-year increase of 49.6% from the N41.74 trillion reported at the close of 2022,’’ Cowry Assets Research disclosed in a report.
The data analysed by the investment firm encompasses all lending sources, with particular attention to small and medium-sized businesses, including those facilitated by the CBN and state-owned development banks like the Bank of Industry, as well as smaller credit extensions by micro-finance and non-interest banks.
The CBN’s credit to the private sector shows significant growth throughout 2023, peaking at an all-time high of N63.6 trillion by the end of October 2023 before stabilizing to N62.52 trillion by year-end. This growth can be attributed to several factors, including the improved level of economic activity post-COVID, signaling economic recovery and increased demand for credit by major businesses despite the prevailing high-interest rate environment.
The data also indicates an improvement and growth in the total banking system liquidity during 2023, providing more lending opportunities for banks.
“This indicates a substantial year-on-year increase of 49.6% from the N41.74 trillion reported at the close of 2022.”
The CBN has implemented various initiatives aimed at boosting credit delivery to the private sector, including the loan-to-deposit (LDR) policy and targeted intervention programs for sectors like agriculture and manufacturing.
A closer examination of total credit to the private sector, as per the CBN’s Quarterly Statistical Bulletin for Q3 ’23, revealed a total credit amount of N39.1 trillion as of the end of September 2023, reflecting a 39 percent year-on-year increase.
The discrepancy of approximately N23 trillion between deposit money banks and private sector businesses can partly be attributed to a three-month time lag.
However, a significant portion of this difference is explained by the CBN’s increasing credit interventions and lending by state-owned banks such as the Bank of Industry.
Regarding the sectoral utilization of credit, the CBN’s quarterly economic report highlighted that the services sector received the largest share of total credit, accounting for over 52 percent, followed by the industry sector with over 43 percent.
Conversely, the agriculture sector received the smallest allocation, around 5 percent, despite being a priority sector for the CBN, indicating ongoing challenges in providing adequate credit accessibility to this critical sector.
Furthermore, total credit extension to the government increased by 36.6 percent year on year to N33.67 trillion in 2023 from N24.66 trillion in the previous year, following a significant decrease of over 70 percent year on year in the preceding month to N5.16 trillion.
Cowry research opines that the growth to over N60 trillion in total credits to the private sector signifies a positive trajectory and speaks volumes of instilled confidence by deposit money and microfinance banks in the resilience of the private sector to stimulate economic activity and job creation.
“However, it is imperative to ensure that credit is channeled to productive sectors and that borrowers can service their loans amidst the high cost of funds. The CBN must continue its efforts to improve access to finance for underserved sectors like agriculture and small and medium-sized enterprises (SMEs),’’ Cowry Assets noted.
