Kayode Tokede

Against the backdrop of the announced minimum loan to deposit ratio (LDR) of 60% by the Central Bank of Nigeria (CBN), credit to the private sector between 2019 and 2021 appreciated by 9.03 trillion naira, THISDAY can report .

In July 2019, the apex bank announced an increase in the minimum required LDR to 60% from the end of September 2019.

After reviewing the monetary policy results, the CBN decided to raise the ratio to 65%, which banks had to meet by the end of December of the same year.

The CBN, in its latest Money and Credit Statistics, revealed that credit to the private sector reached N35.73 trillion in 2021, an all-time high for banks lending to the private sector.

The apex bank had reported credit to the private sector of N26.65 trillion in 2019 and with the latest figure of N35.73 trillion, this means credit to the private sector added N9.03 trillion over the course of the year. of the past three years.

THISDAY can report that credit to the private sector in 2019 when the LDR policy was introduced gained N3.75 trillion or 16.33% to close at N26.69 trillion from N22.95 trillion in 2019.

In 2020, credit to the private sector added 3.5 trillion naira or 13.12% to end December 2020 at 30.15 trillion naira, compared to 26.65 trillion naira recorded in January 2020.

However, in the year 2021, credit to the private sector increased by 5.08 trillion naira or 16.57% at the close of 2021 to 35.38 trillion naira from 30.65 trillion naira reported by the CBN in January 2021.

Deputy Governor, Financial System Stability, CBN, Aisha Ahmad, in her personal statement at the end of the November 2021 monetary policy meeting, noted that improvements in the macroeconomy were propelled by a resilient financial system that channeled significant credit to support growth sectors such as agriculture, manufacturing and general trade, as well as individuals and households.

According to her, “Total credit increased by N4.10 trillion (21.12%) between end-October 2020 and end-October 2021, largely due to increased industry funding base and the CBN’s LDR policy, which encouraged banks to increase lending to the real sector of the economy. This credit to the real sector has been essential for the economy.

An economist and private sector advocate, Dr. Muda Yusuf had told THISDAY that the apex bank was no doubt quite bullish on lending to the real sector and small and medium enterprises (SMEs), pointing out that there are various investment funds. intervention- the LDR and other credit stimulus measures by the apex bank.

He further explained that: “However, there are concerns about the asset quality of loans, particularly those disbursed outside the framework of depository banks.

“There are reports of high default rates which have implications for the sustainability of these interventions. There are also concerns about the risk of lending to targeted growth sectors of the economy. This often results in the reluctance of depository banks to lend to these sectors as they are responsible for bearing the credit risks.

“Many banks have suffered levy shocks for failing to meet mandatory lending thresholds. Therefore, policymakers should come up with strategies to reduce risk from the real sector and the SME space. These are essential for stimulating credit growth to growth sectors of the economy.

In his comments, Vice Chairman of Highcap Securities Limited, Mr. David Adnori, noted that the recovery in the economy has improved the funding of critical sectors by banks.

He noted that: “The steady rise in the economy is boosting banks’ lending to the real sector. Second, in December there was a demand for goods and services. The growth in bank lending to the real sector is the result of the private sector borrowing from banks to meet day-to-day obligations.

Further, PAC Holdings analyst Mr. Wole Adeyeye said, “The 65% LDR has played an important role in the economic activities of the country as it has encouraged an increase in bank lending to the private sector. Loans have helped most businesses meet higher demand in 2021.

“For example, 40 of the 46 economic activities in the national GDP basket recorded a positive growth rate in the third quarter of 2021 (compared to 18 or 46 economic activities in the third quarter of 2020). This translated into positive economic growth in the first three quarters of 2021.”

From the same data, the CBN revealed that currency in circulation closed 2021 at 3.33 trillion naira from 2.83 trillion naira in the year under review.

Currency in circulation hit the $3 trillion mark in November 2021 as bank customers withdraw physical cash during the holiday season.

Financial expert, Mr. Rotimi Fakeyejo explained that the excess liquidity during the “Ber” months has contributed to the growth of currency in circulation, pointing out that Nigerians are struggling to adopt the cashless policy of the CBN.

According to him: “The market is currently flooded with excess liquidity and this is due to the season of the year. CBN interventions in foreign exchange and other key sectors of the national economy are contributing factors to the rise in currency in circulation.

He further explained that Nigeria is still more of a cash economy, facing infrastructure challenges.

“Someone can blame the infrastructure deficit for CBN’s good intention to make Nigeria a cashless society. The infrastructure that will make the cashless policy work is lacking compared to what we have in Kenya,” he added.

The apex bank had revealed that currency in circulation fell to 2.78 trillion naira in August from 2.81 trillion naira in July.

In June it was 2.74 trillion naira and in May it was 2.79 trillion naira. It stood at 2.79 trillion naira in April and 2.8 trillion naira in March.

Adeyeye said a double-digit inflation rate is responsible for the rise in currency in circulation in 2021.

He also said that most Nigerian banks had seen a significant increase in ATM withdrawals and that this could be linked to the increase in currency in circulation. inflation rate as the prices of goods and services increased significantly in the market, hence people have to spend more money.

“Furthermore, the continued depreciation of the Naira in the foreign exchange market shows that people need more Naira to exchange one US dollar. Further, data from most banks in Nigeria has shown a significant increase in withdrawals to ATMs, which may be related to the increase in currency in circulation, and the increase in domestic credit may have contributed to the increase in currency in circulation.

Adnori, for his part, attributed the rise in currency in circulation to the money created by the CBN to finance the federal government’s budget and the intervention of the apex bank in certain key sectors.
In his words: “In my opinion, money creation by the CBN through lending to banks to help them finance certain key projects in the economy could increase physical currency.”