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Wednesday, March 22, 2023

Banking Sector Credit Hits N25trn, Money Supply Rises on CBN Interventions

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The broad measure (M3) of money circulating in the Nigerian financial system increased by 10.97 percent in December 2020 from 5.02 percent in November 2020, driven largely by the growth in Net Foreign Assets.

Total banking sector gross credit as at end of December 2020 stood at N25.02 trillion compared with N24.25 trillion at the end of November 2020, representing an increase of N774.28 billion.

This was largely attributed to the Central Bank of Nigeria’s policy on Loan-to-Deposit Ratio (LDR), complemented by its interventions in various sectors of the economy.

In light of the on-going synchronized efforts by the monetary and fiscal authorities to mitigate the impact of the COVID-19 pandemic, the CBN said it has committed substantial amount of money totaling N2 trillion as at January 2021.

Under the Bank’s real sector interventions, under the Anchor Borrowers Programme (ABP), N554.63 billion had been disbursed to 2,849,490 beneficiaries since the inception of the programme, of which N61.02 billion was allocated to 359,370 dry season farmers.

There was marginal increase in the Non-Performing Loans (NPLs) ratio of banks however which rose to 6.01 per cent at end of December 2020 from 5.88 per cent at the end of November 2020 and above the prudential maximum threshold of 5.0 per cent.

Meanwhile Net Domestic Assets (NDA) expanded to 4.96 per cent from -0.45 per cent in the previous period, while aggregate domestic credit, also moved further up by 13.40 per cent in December 2020, compared with 9.48 per cent in the previous month.

The figures have been boosted both by the CBN and major fiscal stimulus effort by the Federal Government.

Why it Matters

There has been persistent uptick in inflationary pressure in Nigeria for sixteen consecutive months, with headline year-on-year inflation rising to 15.75 per cent in December 2020 from 14.89 per cent in November 2020.

This uptick was attributed to the increase in both the food and core components of inflation, which rose to 19.56 and 11.37 per cent in December 2020, respectively, from 18.30 and 11.01 per cent in November 2020.

This continued upsurge in food inflation was attributed to the logistical bottlenecks, spurred by the increasing security challenges in many parts of the country, which disrupted food production and supply to the market.

Other factors driving the core inflation, include the recent deregulation of the downstream sector of the oil industry, which led to hikes in the price of Premium Motor Spirit (PMS) and the upward adjustment in electricity tariff.

A look at what is driving inflation shows a common problem, a lack of sufficient domestic output (on the supply side) of food, Fuels like petrol and electricity leading to higher prices as demand overwhelms supply.

The flooding of the system with money by the CBN without adequately addressing the supply side of the equation will continue to lead to an increase in inflation expectations, while demand for imported goods like petrol and power equipment will put more pressure on the Naira again leading to imported inflation.

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