Manufacturing sector leads as commercial bank lending to private sector hits record high of N26.8 trillion in June 2022

Nigerian bank credit to the private sector has increased to 26.8 trillion naira in June 2022, the highest on record. This is according to provisional data from the Central Bank of Nigeria.

Commercial banks also called depository banks loaned a total of 26.8 trillion naira in June 2022 from 24.378 trillion naira lent to the private sector from December 2021, representing growth of 10.15% in 6 months.

Deposit Bank loans to the private sector have been 21.89 trillion naira in June 2021 thus adding 5 trillion naira of loan growth in one year.

Nigeria’s central bank has pursued an aggressive policy of lending to the private sector over the past 5 years, hoping that this will help spur economic growth in the real sector, while creating jobs. Loans to the private sector were only N15.7 trillion in December 2015, so around N11 trillion was added in less than 7 years.

A closer look at the data reveals that the manufacturing sector for the first time leads the pack as the sector with the highest proportion of loans. Total manufacturing loans printed at N4.53 trillion or 16.9% of the total.

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What’s in the data

Credit from the banking sector to the private sector
Source: CBN/Nairalytics

Commercial bank lending to the downstream sector has for years captured much of the credit from the private sector.

  • Lending to the manufacturing sector increased by 23% year-on-year to N4.53 trillion, or 16.9% of total banking sector credit to the private sector.
  • It has now taken over from the downstream oil and gas sector which posted a total credit to the sector of N4.2 trillion or 16%.
  • The general services sector was a distant third with 10% of the sector’s total credit.
  • The fastest growing sector is the agriculture sector which grew by 41% year-on-year to N1.6 trillion.
  • Lending to the commerce sector also increased by 39% to N1.9 trillion.
  • Credit to the electricity transmission and distribution sector, however, fell by 20%, the only sector that did not register growth.

Focus on the manufacturing sector

Nigeria’s central bank has pursued a policy in recent years that has forced banks to increase their lending to the private sector. By its combined policy of cash reserve ratio and liquidity ratio, banks are forced to lend more to the real sector of the economy.

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  • In one of its recent monetary policy statements, a member of the committee noted that “All sectors of the economy benefited from the increase in lending, with the top three being oil and gas, manufacturing and general.”
  • Data from the National Bureau of Statistics also reveals that the manufacturing sector has posted a GDP growth rate every quarter since 2021.
  • The sector grew 5.89% in the first quarter of this year, the fastest quarter in about a decade. The manufacturing sector also now contributes 10% of GDP, up from 9% in 2016.

In addition to forcing banks to extend credit to the private sector, especially the manufacturing industry, the CBN has also done its fair share through several policy interventions.

In his latest MPC, he said cumulative disbursements under the Real Sector Facility currently stand at N2.183 billion for financing 414 real sector projects across the country.

Challenges still abound

Despite the increase in lending to the sector, the Manufacturers Association of Nigeria complains of rising interest rates, inflation rates and access to forex as challenges affecting the growth of the sector.

Recent data from Nairametrics reveals that maximum lending rates are on track to exceed 30% as banks.

  • Most recently, Mr. Mansur Ahmed, President of MAN, stressed the need for the two sectors to work together to reduce poverty, attract investment and stimulate economic growth.
  • He said: “The traditional lending relationship between industry and banking no longer supports the growth of industry, banking and the economy as a whole. Industry activities have massively declined to show a growing number of moribund industries across the country and growing capital flight. “Based on this information, it is important that commercial banks and industry come together to define new ways to support each other for the benefit of all.”

However, the CBN Deputy Director, Financial System Stability Directorate, Mr. Eboagwu Ezulu, has recently urged the Manufacturers Association of Nigeria (MAN) looking for cheaper loans to approach Development Finance Institutions such as Development Bank of Nigeria and Bank of Industry for their financing needs.

Credit boom

Central bank data also shows that total credit to the Nigerian economy is now at a record high of N57.2 trillion, made up of N17.9 trillion to the government and N39.2 trillion to the sector. private. Loans to the private sector of N39.2 trillion include loans from banks, non-deposit money banks and central bank intervention loans.

  • A recent article by Nairametrics detailed the effect of the credit boom on Nigeria’s runaway inflation rate, stating that the economic growth it creates does not outpace the rate of inflation.
  • Money supply growth is now seen as a major catalyst for the rate of inflation. Most of the growth takes the form of lending to the public and private sectors of the economy, respectively.
  • As credit increases across the economy, the central bank hopes this will lead to faster economic growth by the time the Statistics Bureau releases its second-quarter GDP data.

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