Nigerian banks have created about N30 trillion in new loans and supports for the private sector in a sustained efforts that have seen the banking sector emerging as the backbone of the country’s economic renewal agenda.
Latest data from the Central Bank of Nigeria (CBN) indicated that credit to the private sector (CPS) rose by 65.9 per cent or N29.52 trillion to N74.31 trillion in May 2024 compared with N44.79 trillion recorded in comparable period of 2023.
The growth in lending and supports to the private sector underlined the resilient balance sheet of banks and banks’ response to the apex bank’s push for increased lending to bolster economic activities.
The CPS includes loans, trade credits and other account receivables and supports provided by banks to the private sector within a period. The CPS is a global measure of the banking sector’s balance sheet resilience and contribution to national economic agenda.
A month-on-month breakdown showed sustained growth in lending over the past two months with additional credits of N1.39 trillion and N1.71 trillion in May and April 2024 respectively.
Banks’ lending and supports to the private sector rose from N71.21 trillion in March 2024 to N72.92 trillion in April and topped N74.31 trillion in May 2024, representing a month-on-month increase of 1.9 per cent and 2.4 per cent for May and April 2024 respectively.
The latest CPS data came on the heels of recent report on capital importation into the country, which showed that banks attracted nearly two-third of capital importation into the country.
Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually take more active stance in the nation’s economy.
Experts agreed that increase private sector credit implies a major boost for the economy as there is a link between credit to the private sector and the economic growth.
Several studies have continuously found that increased lending by banks directly leads to increase in Gross Domestic Products (GDP).
Experts at Cordros Capital said they expected the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for Deposit Money Banks (DMBs) to continue to drive the willingness of commercial banks to create risk assets.
A study published by the CBN concluded that “credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.” The study found that private sector credit increases economic growth.
The balance sheet strength of banks also determine the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks’ resilience and stability.
In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis’, researchers at International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.
The study found that “banks with strong balance sheets were better able to maintain lending during the crisis”.
According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.
“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.
CBN Governor, Dr. Olayemi Cardoso, has said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.
According to him, additional capital would not only provide substantial buffer for banks against potential economic challenges, but enhance Nigeria’s banks capability to support massive economic growth and play competitively globally.
Experts agreed that considering the increase changing dynamics in the banking sector and the overall economy since the last recapitalisation, it has become necessary to strengthen the banks’ financial positions.
A senior banker, Tomi Omojuwa, said the ongoing recapitalisation would eventually put some Nigerian banks among the top banks in Africa, a position not presently enjoyed by any of the country’s banks, notwithstanding that Nigeria is said to be the largest economy on the continent.
According to him, recapitalisation will also stimulate the real sector of the economy, because with a huge capital base, banks will have more to channel towards the real sector of the economy, thereby making the country more of a production economy than a consuming economy.
“With increased capital base, one single bank will be able to fund big ticket transaction alone especially in the manufacturing sector that is highly capital intensive.
“This will in turn lead to economic growth, thereby increasing the Gross Domestic Products (GDP) of the nation.
“This policy will also enable Nigerian banks to be able to handle some big ticket transactions. The single obligor limit does not permit a bank to grant more than 20 per cent of its shareholders funds to any one person or corporate body.
” This has always placed a limitation on banks especially in Nigeria to fund big capital project without support from foreign banks. There is no better time to have this policy than now,” Omojuwa said.
