Private Sector Credit Extension Rises to N71.2trn

By Adedapo Adesanya

Private sector credit extension (PSCE) increased by 66 per cent year-on-year to N7.12 trillion as of the end of March 2024, the latest data from the Central Bank of Nigeria (CBN) showed.

This marks a deceleration compared with the growth of 94 per cent year-on-year recorded in the previous month.

On a month-on-month basis, PSCE extension declined by 12 per cent indicating that previous policy rate hikes by the Monetary Policy Committee (MPC) are starting to be transmitted through the economy.

Recall that Nigeria’s headline inflation has risen rapidly since December 2022. The latest headline reading showed that inflation hit a 28-year high of 33.20 per cent year-on-year in March.

In its attempt to quell the persistent inflationary pressures and achieve price stability. the apex bank through its MPC has so far this year hiked rates by 600 basis points to 24.75 per cent which is the highest level in recent years.

To further address heightened inflationary pressures, the apex bank adjusted the asymmetric corridor of the MPR to +100 basis points/-300 basis points (from +100/-700 basis points), raised the Cash Reserve Ratio (CRR) to 45 per cent from 32.5 per cent, and reduced the Loan-to-Deposit Ratio (LDR) by 15 basis points to 50 per cent.

According to the MPC’s personal statement for its March meeting, almost all committee members highlighted the adverse impact of sustained inflationary pressures and price instability on the economy’s recovery.

Meanwhile, credit extension to the government declined significantly by 42 per cent compared to February 2024 and 29 per cent from the same period in 2023 to N19.6 trillion in March.

The broad money supply (M3) and the M2 money supply expanded by 66 per cent year-on-year and 69 per cent year-on-year respectively, broadly in line with March’s PSCE growth rate.

However, on a month-on-month basis, their growth decelerated slightly by 3 per cent month-on-month and 2 per cent month-on-month, respectively, reflecting the MPC’s restrictive measures.

There are high expectations banks will slow down in extending credit to the private sector as the full impact of the MPC’s previous interest rate hikes and other tightening measures continues to impact the economy.