The total domestic credit from the banking sector to the economy dropped by 0.8 per cent to N21.3tn as of the end of October 2015, statistics obtained from the Central Bank of Nigeria have revealed.
The CBN in its economic report for October stated that the drop in credit to the economy was a reflection of the 18.9 per cent decline in net claims on the Federal Government.
The report, a copy of which was obtained by our correspondent in Abuja on Friday, said while the total credit to the private sector experienced an increase of 1.9 per cent to N19.07tn, the credit to the Federal Government dropped by 18.9 per cent to N2.26tn.
It attributed the decline in credit to the government to a drop in bank’s holding of the government securities particularly the Nigerian Treasury Bills which fell by 10.3 per cent during the period.
It said, “At N21.34tn, aggregate credit to the domestic economy, on month-on-month basis, fell by 0.8 per cent at the end of October 2015 in contrast to the 0.6 and four per cent growth at the end of the preceding month and the corresponding period of 2014, respectively.
“The development reflected the 18.9 per cent decline in net claims on the Federal Government, which more than offset 1.9 per cent growth in claims on the private sector.
“Over the level at end of December 2014, net domestic credit, however, grew by 10.8 per cent at the end of the review period, compared with the growth of 11.7 per cent at the end of the preceding month.
“The development reflected the increase in net claims on both the Federal Government and private sector.”
The report did not provide details of where lending was channelled in the private sector but noted that growth in the key monetary aggregate decelerated during the period.
The CBN Governor, Mr. Godwin Emefiele, had while speaking after the recent Monetary Policy Committee meeting said the apex bank in November reduced the lending rate from 13 per cent to 11 per cent but stressed its objective of easing lending to the real sector of the economy had not been achieved.
He said the CBN would continue to adopt moral suasion to encourage the Deposit Money Banks to support financing for targeted lending to the real sector as well as agriculture, solid minerals and the Small and Medium Enterprises sectors of the economy.
He said, “The committee acknowledged the continuous liquidity surfeit in the system stemming partly from the recent growth-stimulating monetary policy measures, as well as the tendency of the banks to invest excess reserves in government securities, rather than extend credit to the needed sectors of the economy.
“To this end, the committee once again urged the deposit money banks to improve lending to the real sector, as part of their patriotic obligations to the country and enjoined the management of the bank to continue to explore ways of incentivising lending to employment and growth-generating sectors, particularly the SMEs.”
When asked if the CBN would consider forcing banks to lend to the real sector, the governor said inasmuch as the CBN would prefer that the DMBs increased their lending to the real sector, it would be practically impossible to force them to do so owing to the fact that banks were established to make profit.
He said, “Unfortunately, the DMBs are in business to make money and we cannot regulate their interest rate. And so it can be difficult to really force them to lend to a particular set of people.
“But what we can continue to do is to put in place policies that will encourage them to do so or we can continue to incentivise them by putting in place policies that will encourage them to do so.
“So it is a free market and we cannot really compel them as it is expected. We will continue to try.
“This is why at the last meeting, we reduced the Cash Reserve Requirement from 25 per cent to 20 per cent. And we then insisted that that liquidity that will be made available or that those banks can only enjoy the reduction if they introduce to the CBN projects that are targeted at the real sector such as manufacturing, agriculture and the SMEs.”
He said the apex bank remained optimistic that the banks would heed the advice and lend to the real sector.