Analysts Applaud Increase Loans to Private Sector

Analysts have lauded credit growth in the private sector of the economy, noting that costs of lending however remain downside to the year 2024 outlook.

The Central Bank’s money and credit statistics revealed 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.

In its economic update, the research arm of Cowry Asset Limited said that the growth to over N60 trillion in total credit 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 channelled to productive sectors and that borrowers can service their loans amidst 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)”, the firm added.

The amount extended to the private sector 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.

This includes 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.

Analysts attribute this growth to several factors, including the improved level of economic activity post-COVID, signalling 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, said Cowry Asset Research in a note.

The firm noted that 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.

Details revealed that total credit to the private sector, as per the CBN’s Quarterly Statistical Bulletin for Q3-2023, revealed a total credit amount of N39.1 trillion as of the end of September 2023, reflecting a 39% year-on-year increase.

According to Cowry Research, the discrepancy of approximately N23 trillion between deposit money banks and private sector businesses can partly be attributed to a 3-month time lag.

However, analysts added that 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%, followed by the industry sector with over 43%.

Conversely, the agriculture sector received the smallest allocation, around 5%, 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% year on year to N33.67 trillion in 2023 from N24.66 trillion in the previous year, following a significant decrease of over 70% year on year in the preceding month to N5.16 trillion.  #Analysts Applaud Increase Loans to Private Sector#

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