The total value of consumer credit disbursed by commercial banks increased from N632.71 billion recorded in December 2018 to N753.85 billion as at June.
A member of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC), Prof. Adeola Adenikinju, said it rose from N747.88 billion as of May 2019, to N753.85 billion as at June, in his personal comment at the July MPC, which was obtained yesterday.
This, however, represented a significant increase by 19 per cent or N121 million, compared with the N632.71 billion recorded in December 2018.
This is coming as banking industry indicators have remained positive, with the value of non-performing loan (NPL) ratios in the sector at 9.36 per cent as at June 2019, the first time it would drop to single-digit in the past 40 months. Overall, personal loans accounted for 4.88 per cent of total industry lending in June 2019. Adenikinju explained: “While this is a positive development, current and proposed measures by the monetary authorities should help to boost this ratio significantly.
“Analysis of the monthly trend in credit to real estate, shows that there is a need for both an increase in the overall share of the loan going to this potentially high employment generation and domestic-oriented sector, as well as rebalancing of the credit going to the sector between the supply and the demand sides of the market.
“Presently, credit to real estate is overwhelmingly focused on the supply side, which may lead to excess supply of housing units, albeit at very low sector equilibrium level.” According to him, the banking system stability report presented by staff of CBN during the meeting showed positive developments in the financial system.
He said the financial systems indicators were in the right direction in the period under review. Adenikinju added: “The Capital Adequacy Ratio (CAR) and the Non-Performing Loans (NPLs) ratios are trending in the right direction. For the first time since December 2015, the NPLs in June 2019 were single digit, though higher than the maximum required under the prudential guideline.”
He noted that unemployment, poverty and weak growth were major structural problems in the economy, saying that unfortunately, there is a limit to the potency of monetary policy alone to address problems of power deficit, infrastructural gaps and other factors contributing to high costs of doing business in Nigeria. These problems, unless addressed, will also limit the extent to which the country can effectively benefit from the Africa Continental Free Trade Agreement (AfCFTA), he said.
On her part, CBN Deputy Governor, Financial System Stability, Mrs. Aisha Ahmad, who reiterated that banking industry indicators remained positive, put the value of non-performing loan (NPL) ratios in the sector at 9.36 per cent as at June 2019, the first time it would drop to single-digit in the past 40 months.
However, Ahmad pointed out that several months of low credit to the private sector amidst burgeoning treasury securities activity prompted the CBN’s policy statement on July 3, mandating banks to build up their minimum loan to deposit ratio (LDR) to 60 per cent over a three-month period, with additional incentives (150 per cent weighting) for new SMEs, retail, mortgage and consumer loans.
“Focus on the minimum industry LDR is expected to stimulate additional private sector credit growth, reduce credit concentration in energy assets and large corporates and lower the cost of credit – which has remained sticky downwards despite recent decreases in treasury yields.
“This expanded finance for individuals and small businesses will create jobs, enhance consumer spending and stimulate growth,” she said. Ahmad stressed that the road to economic recovery was complex and winding, given global economic headwinds and Nigeria’s peculiar domestic economic context.
“Thus far, monetary policy initiatives have worked – with relative success – to maintain price and monetary stability and create conditions that stimulate growth. However, it is not without its limits. “Getting the economy on a sustainable growth trajectory will require fiscal policy and structural reforms to complement existing monetary policy initiatives,” she said.
In his contribution, Deputy Governor, Corporate Services, Mr. Edward Adamu, said the downward adjustment in the Monetary Policy Rate in March and other administrative measures by the CBN were having some effects. In particular, short-term rates were tending downwards as system liquidity grows, he said.
According to him, the overall outlook for the naira exchange rate has continued to resonate stability, predicated mainly on effective market interventions and relatively good level of external reserves (supported by high inflows). In his presentation, the Deputy Governor, Economic Policy, CBN, Dr. Joseph Nnanna, said the current momentum remained inadequate to create sufficient jobs to address the subsisting high unemployment level.
“Fiscal conditions remain disappointing and could further exacerbate the public sector debt and debt service challenges. Strengthening the institutional capacity to grow buffers particularly, efficiency in revenue collections would yield significant economic benefits,” he added.
Also, the Deputy Governor, Operations, Mr. Folashodun Shonubi, expressed belief that recent monetary policy direction in developed economies towards a dovish strategy “presents us with the opportunity to optimise capital flow and strengthen external reserves.”
“As we pursue what seem like a bank-led strategy towards recovery and growth, we must intensify controls to ensure that vulnerabilities that may arise from rapid expansion of credit are put under check.
“Facilitating and enforcing mechanisms for monitoring and quality assurance to ensure facilities are properly deployed, will be critical to consolidating on initial gains, as well as, promoting sustainability. “More importantly, given the limitations of monetary policy to promote growth in the medium to long run, we must realise that the bank does not have unlimited resources to stimulate growth.
“The fiscal authorities also have the responsibility for promoting growth, but resource constraint within the fiscal space has limited the capacity of the government. It is important that this is addressed as soon as possible. “Therefore, the effort of the CBN needs to be supported by other sectors, like the pension sector, to facilitate the release of needed capital to fund high capital-based projects with linkages across the economy,” he added.