Credit to the private sector in Nigeria reached unprecedented levels, standing at 24.45 trillion naira at the end of January 2022, representing a huge year-on-year increase of 4.19 trillion naira. ‘other.
This is according to data obtained by Nairametrics Research from the Central Bank of Nigeria (CBN).
Credit to the Nigerian private sector has been steadily increasing since June 2021, the latest being an increase of 68 billion naira, from 24.38 trillion naira recorded in December 2021 to 24.45 trillion naira at the end of January 2022.
Similarly, bank credit to the private sector had increased by N366.14 billion in December 2021 and N687.95 billion in the previous month.
On the other hand, banks reduced their credit risk exposure to the oil and gas industry, falling to 17.3% in January 2022 from 19.35% recorded in the corresponding period of 2021.
Why the surge in bank lending
The significant increase in credit to the private sector can be attributed to the accommodative monetary policy of the Central Bank of Nigeria, maintaining the benchmark interest rate at 11.5% since October 2020, with the aim of stimulating the growth of economic activities that had been marred by covid -19 and resulted in two consecutive quarters of GDP contraction.
It should be noted that the monetary policy committee’s approach to keeping interest rates low paid off as the economy recorded significant growth in 2021. Nigeria’s real GDP grew by 5.01 %, 4.03% and 3.98% in the second, third and fourth quarters. 2021 respectively.
However, increased activities and improved currency in circulation, exacerbated by other social and infrastructural issues, have exacerbated inflationary pressures in the country, with food inflation currently standing at 17.11% and headline inflation at 15.7%.
Meanwhile, the MPC voted to maintain the precautionary policy by keeping interest rates low for the 10th consecutive meeting, although this time four committee members voted to raise the MPR against six members in favor of a holding position.
Sectors with the highest bank credit
- A closer look at the CBN data revealed that the downstream oil and gas sector is the largest beneficiary of bank credit with N4.23 trillion in January 2022, accounting for 17.3% of total private sector credit.
- Notably, the sector includes the refining of natural gas and crude oil. In economic terms, the oil sector has been one of the worst performing sectors in the Nigerian economy, recording recurrent contractions in real GDP over the past seven quarters and an 8.3% year-on-year decline in 2021.
- It is no wonder that banks are trying to reduce their lending exposure in the oil and gas industry in Nigeria and in the global economy. This is due to the volatility associated with the crude oil market and declining industry activity. It should be noted that the oil market has been on an uptrend since 2021, following the OPEC+ supply reduction strategy and the ongoing confrontation between Russia and Ukraine.
- The manufacturing sector followed closely with total credit of N4.19 trillion during the review period, which accounted for 17.1% of total private sector credit. The service sector, with a total credit of N2.38 trillion, ranks third on the list.
- Others include government (2.34 trillion naira), finance (1.73 trillion naira), trade (1.69 trillion naira), agriculture (1.46 trillion naira), petroleum and upstream gas (1.46 trillion naira), construction (1.03 trillion naira). billion) and ICT with total bank credit of N952.1 billion.
The manufacturing sector receives more bank credit
The banking sector is beginning to increase its exposure to the manufacturing industry, increasing its credit to the industry by N1.03 trillion over the one-year period under review. Specifically, credit to the manufacturing sector increased from N3.16 trillion recorded in January 2021 to N4.18 trillion in January 2022.
Manufacturing sector credit exposure increased to 17.1% in January 2022 from 15.6% in January 2021 and 15.74% in the same period of 2020.
The increase in credit allocation to the manufacturing sector follows the improvement in activity recorded in the industry in recent times. The manufacturing sector grew by 3.35% year-on-year in real terms in 2021. The sector has been on a positive trajectory since 2017, with the exception of covid-19 which disrupted 2020.
Growing activities in the cement industry, vehicle assembly and food production in the economy are some of the factors driving the improvement in Nigeria’s manufacturing sector and, by extension, an incentive willingness of commercial banks to lend to the sector.