Credit to the Private Sector (CPS) surged by 27.3 per cent year-on-year to N75.96 trillion in November, Central Bank of Nigeria (CBN) economic report, has shown.
The uptick in credit to key sectors of the economy has been attributed to CBN’s reduction of Laon to Deposit Ratio (LDR) from 65 per cent to 50 per cent and monitoring of banks’ compliance with the policy implementation.
Analysts at Codros Securities, said: “We believe the continuous increase in CPS reflects the impact of CBN’s enforcement of the 50 per cent loan-to-deposit ratio and the conversion effect of currency depreciation on banks’ foreign-denominated assets. Similarly, Credit to the Government surged to a record high of N39.62 trillion in November, representing a 54.4 per cent year-on-year increase from N25.66 trillion in November 2023, indicating increased government borrowings from domestic banks for deficit financing,” he said.
The analysts said that overall, broad money supply (M3) grew by 51.3 per cent year-on-year to N108.97 trillion, following increases across quasi (+61.3 per cent year-on-year) and narrow (+38 per cent year-on-year) money supply.
On a month-on-month basis, the CPS rose by 2.5 per cent in November.
We expect the CPS to continue expanding in the short term as we believe the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks (DMBs) will continue to drive the willingness of commercial banks to create risk assets. Nonetheless, we acknowledge that the increased monetary policy tightening measures may tether CPS growth,” the analysts said.
Inflation Rate in Nigeria increased to 34.60 per cent in November from 33.88 per cent in October of 2024.
Inflation rate in Nigeria averaged 13.90 per cent from 1996 until 2024, reaching an all time high of 47.56 per cent in January of 1996 and a record low of -2.49 per cent in January of 2000.
The CBN recently said, its decision to cut LDR from 65 per cent to 50 per cent was a significant approach to put soaring inflation under check.
The apex bank said current LDR aligned with the CBN’s current monetary tightening plan. Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50 per cent, in a similar proportion to the increase in the Cash Reserve Ratio (CRR) for banks.
It directed all commercial banks to maintain the LDR level and ensure that average daily figures are continually applied to assess compliance.
It explained that LDR rate is crucial in assessing banks’ capacity to lend, manage risks and ensure financial system stability, stating that LDR evaluates a banks’ lending activities, relative to their deposit base.
We try to combat inflation in different ways but the ultimate objective is to combat inflation. And that is exactly what central bank is doing today. Whatever it takes to fight inflation, we’re going to do that,” it stated.
The apex bank said fighting inflation will also require reducing the volume of credit banks can lend to customers and also boosting the quality of such credits.
“Sometimes it’s not the quantum of credit that you’re able to churn out that matters, but the quality of the credit you’re able to package. In line with the CBN mandate, the apex bank is utilising orthodox monetary policy to manage the economy and LDR is one of the metrics used to evaluate banks’ lending activities, relative to their deposit base,” it stated.
On how the apex bank came to rely on LDR to control inflation, it said it started since 2019, when it was observed there was a massive slowdown in credit growth.
“This policy was created to ensure that money flows into the real sector of the economy. The LDR then was set at 60 per cent, and later increased to 65 per cent before it was last week reduced to 50 per cent. And if you want to combat inflation using the orthodox method, you need to balance what you do with the monetary policy tools and other measures,” it said.
