CBN: Banks’ loans to private sector dropped by nearly N10trn in March

The Central Bank of Nigeria (CBN) has disclosed banks reduced loans to the private sector to N71.21 trillion in March.

Credit to the private sector describes monetary resources given to the private sector, such as advances and loans, purchases of non-equity securities, trade credits, and other accounts receivable, which create a claim for repayment.

According to the CBN’s money and credit data, the current figure represents a month-on-month decline of 11.93 percent or N9.65 trillion drop, compared to N80.86 trillion recorded in February.

However, on a year-on-year basis, credit to the private sector rose by 65.57 percent compared to N43.01 trillion recorded in the corresponding period in March 2023.

In January, credit to investors was N76.29 trillion.

Also, data obtained from the CBN showed credit to the government decreased to N19.59 trillion in March from N33.93 trillion in February — representing a month-on-month decline of 42 percent.

On a year-on-year basis, CBN reported that credit to the government rose by 28.8 percent against N27.52 trillion in March last year.

Credit to the government stood at N36.18 trillion in January.

The decline in credit to the private sector and government follows CBN’s monetary tightening.

CBN has raised interest rates 10 consecutive times since May 2022 — a move that has increased the cost of borrowing — to tame inflation.

Also, in line with its monetary tightening, CBN announced a downward review of the loan-to-deposit ratio (LDR) from 65 percent to 50 percent on April 17.

LDR is used to assess a bank’s liquidity by comparing its total loans to its total deposits.

An increase in the loan-to-deposit ratio allows banks to expand their credits to businesses and individuals, however, a decline in LDR reduces their ability to loan customers from depositors’ funds.