The pace of deposit money banks’ credit expansion to the private sector decelerated by 5% in February 2024 compared to January 2024, as reported by the Central Bank of Nigeria (CBN).
Data from the CBN indicated that credit to the private sector increased at a slower rate, reaching N80.86 trillion in February 2024, compared to N76.29 trillion in January 2024.
This slowdown in credit growth to the private sector follows the recent tightening of monetary policy by the CBN, with the Monetary Policy Committee (MPC) raising the Monetary Policy Rate (MPR) by 400 basis points to 22.75%. Additionally, adjustments were made to other monetary policy parameters, including the Cash Reserve Ratio and the asymmetric corridor surrounding the MPR.
Furthermore, currency in circulation saw a modest increase of 1.09% to N3.69 trillion in February 2024. Conversely, credit to the government decreased by 6.22% to N33.92 trillion during the same period.
Experts attribute the reduction in government borrowing from the CBN to compliance with the CBN Act, coupled with improved government revenue resulting from subsidy removal and foreign exchange convergence.
However, concerns arise regarding rising borrowing costs, potentially constraining loan growth, and impacting asset quality. Members of the MPC stress the importance of preserving financial system stability amidst tightening monetary policy, emphasizing the need for vigilance and proactive measures.
Despite the challenges faced by Nigerian banks, characterized by liquidity constraints and pressure to meet loan-to-deposit ratio targets, recent reports indicate that the financial system remains resilient, with prudential ratios within regulatory limits. Nevertheless, there are apprehensions regarding the potential escalation of non-performing loans (NPLs), posing risks to banking sector stability amidst economic uncertainties.
