‘Banks pumped N4.56tr into economy in one year’

Banks have injected N4.56 trillion into the economy as loans through private sector operators in the last 12 months, a member of the Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) Prof. Festus Adenikinju, has said.

In his personal note to the MPC released on Tuesday by the apex bank, Adenikinju said N300 billion was loaned to banks’ customers within the last one month.

According to the MPC member, the banking sector also attracted N6.95 trillion fresh deposits within the last one year.

The uptick in loan extension was attributed to the administrative actions around the Cash Reserve Requirement (CRR) as well as the Loan-to-Deposit Ratio (LDR) policies of the apex bank which encouraged banks to lend more to the private sector.

However, non-performing loan ratio deteriorated marginally from 6.10 per cent in December 2020 to 6.30 per cent in February in line with growth in the loan portfolio.

Adenikinju, who is also a professor of economics at the University of Ibadan, said the banking stability report shows that the sector remains resilient but returns on banking assets have continued to dip.

He said: “The capital adequacy ratio, non-performing loans ratio and the liquidity ratio remain quite encouraging.

“However, there were moderate declines in returns on equity and returns on assets and a significant rise in the share of operating incomes in total interest incomes of deposit money banks. All measures of bank size, total assets, credit and deposits significantly rose year-on-year.”

The professor said the other financial institutions have also expanded credit appreciably, thereby providing credit support to women, workers, and informal sector operators, those that are discriminated against by the traditional banks.

He said: “Data on the industry’s credit disbursement shows that 83.04 per cent of banking creditors were able to access credit at below 15 per cent lending rates.”

On the foreign exchange market, he said the CBN has spent over $1.3 billion to defend the naira between January and February 2021.

“It is early in the day to know the extent to which the new policy of CBN to boost remittances will impact on pressures in the foreign exchange market. Capital imports, though have picked up in recent months is still far below the level it was in January 2020,” he added.

CBN Deputy Governor, Corporate Services, Edward Lamtek, said a double-dip recession or even a low-growth trap must be avoided.

On the risks, Lamtek said: “Rising production costs, slowing foreign exchange inflow, insecurity and the second wave of COVID-19 are some of the immediate downside risks to domestic economic growth. These same conditions have tended to aggravate consumer price pressures in recent months.”

Lamtek explained that although, the economy exited recession in fourth quarter of 2020, some of the key growth pillars – manufacturing and services especially – continued to struggle against the headwinds noted earlier.

The CBN director said: “I believe that the prospects of improved domestic output in 2021 hinge mainly on effective liquidity support, robust private credit and confidence building through predictable policy actions. On liquidity support, the current stance of monetary policy, complemented by the development finance interventions should suffice.”

The credit to the private sector remains robust due to some of the administrative actions around the cash reserve requirement (CRR) as well as the loan-to-deposit ratio (LDR) policy.

As industry funding grows, the short-to-medium term outlook for new credit should continue to be positive.

He expressed concerns the rising inflationary pressure seems to be unabated adding that Nigeria has one of the highest inflation rates in the world.

Lamtek said: “High inflation induces macroeconomic instability. It will negatively affect the welfare of households and fixed income earners.

“Inflation is perhaps the key factor damaging the outlook of the Nigerian economy. With headline inflation accelerating from 15.75 per cent in December 2020 to 16.47 per cent in January 2021 and further to 17.33 percent in February 2021, above the tolerance band, the effect on output recovery will largely be disruptive.”