Zenith, UBA, GTBank Others Slash SME Loans as CBN Removes Daily Limits on 'Savings'
- Nigeria's commercial banks have boosted private sector lending by a staggering N20.8 trillion in just a single year
- The CBN statistics encompass loan activity for all banks and the banking industry overall, according to FBNQuest
- After the CBN eliminated the N2 billion daily cap on the Standing Deposit Facility, the amount began to decline
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Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.
Commercial banks in the nation have seen a significant N20.8 trillion Year-on-Year (YoY) growth in their total lending to the private sector, reaching a considerable N62.52 trillion in 2023.
Source: UGC
The private sector credit extension (PSCE) saw a strong YoY growth of 49.78% from N41.74 trillion reported in December 2022 to December 2023, according to data from the CBN.
ThisDay reported that this is despite the strict regulatory measures enforced by the Central Bank of Nigeria (CBN).
In a recent analysis, FBNQuest pointed out that the CBN data includes loan activities across the entire banking system and encompassing entities banks.
Credit decline after CBN's directive
The first eight months of 2023 saw a steady increase in bank lending to the private sector, but in September, after the CBN eliminated the N2 billion daily cap on monies deposited via the Standing Deposit Facility (SDF) window.
The SDF functions similarly to a central bank savings account for banks. Extra cash from banks can be deposited there, and the central bank pays interest. It's one of the tools the central bank uses to manage money in the banking system and set interest rates.
Data showed that lending to the public fell from N59.51 trillion in August to N56.95 trillion in September. The number also declined in November to N59.74 trillion from N63.57 trillion in October 2023.
ThisDay was informed by Olumide Sole, an SSA Banking research analyst at Vetiva Capital Management Limited, that risk management techniques used by financial institutions to deal with the new administration's policy changes could be the reason for the decrease in loans to the private sector.
He said that removing the limit in the SDF window is another critical factor.
What this means
Olumide explained that banks can now sell their excess liquid assets through that window and receive a risk-free return of 15.75 per cent instead of taking on more risk when they extend credit to the private sector.
Meanwhile, Dr Muda Yusuf, the Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), stated that the distribution of bank credit is channelled towards sectors such as oil & gas, adding that SMEs' contribution is not up to 1 per cent.
According to him, the Small and Medium Enterprises (SMEs) segment is critical in development. He added that it would be difficult to see the impact if this sector does not have credit.
The additional N20.8 trillion in credit extended to the private sector, according to Vice President David Adnori of Highcap Securities Limited, has not improved the macroeconomic conditions in Nigeria.
If the extra N20.8 trillion had any effect, he said, it might have shown in the inflation rate.
According to him, the inflation rate is still rising, which suggests that the things the banks are funding are not improving the economy's supply position.
Banks deposits hit N2.41tn as CBN 'removes' Savings account limit
Legit.ng reported that a staggering N2.41 trillion has been deposited with the Central Bank of Nigeria (CBN) during the last 13 days by Nigeria's Deposit Money Banks (DMBs) and commercial banks.
The deposits were made through the Standing Deposit Facility (SDF) of the CBN.
Banks can park surplus liquidity or cash and earn interest using a standing or overnight deposit facility.
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Source: Legit.ng
