Hard times: Nigerians borrow N290bn from banks in three months – CBN report

The challenging economic situation of the county has pushed more Nigerians into debt as about N290bn was borrowed from banks in three months.

This is according to the recent Economic Report for the Second Quarter of 2023 by the Central Bank of Nigeria (CBN).

According to the report, consumer credit, which includes personal and retail loans, increased by 12.2% from N2.35 trillion in the first quarter of 2023 to N2.64 trillion by Q2 of the same year.

This means an increase of N290bn in three months between April and June this year.

Out of the total consumer credit of N2.64 trillion as of June 2023, personal loans makeup N1.92 trillion (72.9 %) while retain loans make up N715.10 billion (27.1%).

The report read: “Consumer credit improved owing to increased demand for personal loans and strengthened enforcement of the Loan-to-Deposit Ratio (LDR) policy. Consequently, total consumer credit increased significantly by 12.2%, to ₦2,637.31 billion in the second quarter of 2023, compared with ₦2,349.88 billion at the end of the preceding quarter.

“As a share of total credit by ODCs, consumer credit declined to 7.0%, this was below the 7.7 and 7.8 per cent recorded in the preceding quarter and the corresponding period of 2022, respectively. The components of consumer credit revealed that personal loans accounted for the larger share, totalling ₦1,922.20 billion, representing 72.9% of the total, while retail loans accounted for 27.1%, equivalent to ₦715.10 billion.”

More Insight

The apex bank attributed the increase in consumer credit to more demand for personal loans and reinforced the implementation of the LDR policy.

Nigeria’s inflation has been on the rise, with indications that it may hit 30 per cent by December 2023. 

The surging inflation has left many Nigerians groaning under the weight of the skyrocketing cost of everything from food to fuel and rent.

Inflation pushed an estimated four million more Nigerians into poverty in the first five months of this year, the World Bank said in July.

Already, about 133 million Nigerians are multidimensionally poor. If the inflation persists, there is a high risk that more Nigerians will fall into poverty.

It is not surprising that more Nigerians have to borrow to meet up with daily needs, among others.

In fact, a report by SBM Intelligence found that 27% of Nigerians across different income categories resort to loan apps to sustain their living expenses amid rising inflation.

Against this background, the CBN in July this year noted that it would resume the enforcement of the LDR policy effective July 31, 2023.

The move, according to the central bank, was made in response to a directive issued to banks on January 7, 2020, which mandated that they keep their LDR at a minimum of 65%.

A bank’s liquidity can be evaluated using the loan-to-deposit ratio (LDR), which is calculated by dividing the total loans by the total deposits. A bank’s ability to meet its liquidity requirements (pay depositors) in the event of a market downturn can be gauged from this metric.

To further clarify that the restart of enforcement was in keeping with the policy’s purpose and the need to reduce industry surplus liquidity, the central bank sent a letter to the banks, signed by Abu Shebe on behalf of the CBN Director, Banking Supervision.

Banks were required by the apex bank to maintain a minimum loan-to-funding ratio (LDR) of 60.0% on July 3, 2019; this requirement was raised to 65.0% on September 30, 2019, with the intention of encouraging banks to increase consumer, mortgage, and corporate credits, which in turn would stimulate aggregate demand, output growth, and employment.

The purpose of the LDR policy was also to encourage banks to boost credit distribution to the real sector of the economy.