Credit to Private Sector Climbs to N75.48 Trillion Amid Rising Money Supply

Nigeria’s credit to the private sector has surged by 33.69% year-on-year to N75.48 trillion as of July 2024.

This substantial growth comes amid rising money supply levels, which reached a historic high of N106.27 trillion during the same period, according to data from the Central Bank of Nigeria (CBN).

The expansion of credit to the private sector highlights the banking industry’s robust response to growing demand for financing, driven by the escalating cost of goods and services in the country.

On a month-on-month basis, credit to the private sector increased by 3.13%, climbing from N73.19 trillion in June 2024 to N75.48 trillion in July.

Economic analysts have attributed the rising credit levels to the need for businesses to access financing in an inflationary environment.

The demand for loans is fueled by rising operational costs, particularly for essential goods and services, as companies struggle to maintain profitability amidst soaring inflation.

Muda Yusuf, CEO of the Promotion of Private Enterprise, explained that businesses are facing significant price hikes, particularly in essential commodities, making it necessary for companies to secure credit facilities to sustain their operations.

“Despite the rising cost of goods, businesses have no choice but to purchase essential inputs to keep their operations running, and this has led to a surge in the demand for credit,” Yusuf said.

The increase in credit to the private sector has provided a lifeline for many businesses, but it also raises concerns about debt sustainability in the long term.

High interest rates and inflationary pressures are straining companies’ ability to repay loans, leading to potential risks for financial institutions.

This rise in credit also coincides with the surge in Nigeria’s money supply, which grew by 62.66% year-on-year to reach N106.27 trillion in July 2024.

The rapid expansion of the money supply pressures inflation rates as more money in circulation could further elevate prices, posing challenges to economic stability.

The Central Bank of Nigeria has implemented several tightening measures to combat rising inflation, including increasing the Monetary Policy Rate (MPR) to 26.75% in its July 2024 Monetary Policy Committee (MPC) meeting.

However, the effectiveness of these measures in curbing inflation remains uncertain, as the demand for credit continues to rise, driven by the private sector’s need to stay afloat in a challenging economic environment.

As businesses seek financing to weather the economic storm, the interplay between rising credit levels and the money supply will be critical in shaping Nigeria’s outlook.

While access to credit remains vital for sustaining business operations, maintaining a balance between lending growth and inflation control will be a key focus for policymakers in the months ahead.