Banks Bolster Economic Growth As Private Sector Credit Soars By N30trn
Banks Bolster Economic Growth As Private Sector Credit Soars By N30trn …C0NTINUE READING HERE >>>
Bank loans and support for the private sector have risen by about N30 trillion in a sustained effort that has seen the banking sector emerging as the backbone of the country's economic renewal.
Latest data from the Central Bank of Nigeria (CBN) indicate that credit to the private sector (CPS) rose by 65.9 per cent, or N29.52 trillion, to N74.31 trillion in May 2024 compared with N44.79 trillion recorded in the same period of 2023.
The growth in lending and support to the private sector underlined the resilient balance sheet of banks and banks' response to the apex bank's push for increased lending to bolster economic activities.
Experts agree that the increase in private sector credit implies a major boost for the economy as there is a link between credit to the private sector and economic growth. Several studies have continuously found that increased lending by banks directly leads to an increase in Gross Domestic Product (GDP).
The balance sheet strength of banks also determines the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks' resilience and stability. Banks with strong balance sheets were better able to maintain lending during crises, according to research by the International Monetary Fund.
CBN governor, Dr. Olayemi Cardoso, said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy. Additional capital would enhance Nigeria's banks' capability to support massive economic growth and play competitively globally.
The growth in lending and support to the private sector underlined the resilient balance sheet of banks and banks' response to the apex bank's push for increased lending to bolster economic activities.
A month-on-month breakdown showed sustained growth in lending over the past two months with additional credits of N1.39 trillion and N1.71 trillion in May and April 2024 respectively.
Banks' lending and supports to the private sector rose from N71.21 trillion in March 2024 to N72.92 trillion in April and topped N74.31 trillion in May 2024, representing a month-on-month increase of 1.9 per cent and 2.4 per cent for May and April 2024 respectively.
The latest CPS data came on the heels of a recent report on capital importation into the country, which showed that banks attracted nearly two-third of capital importation into the country.
Analysts had said this was a measure of confidence in the Nigerian banks as foreign investors gradually take a more active stance in the nation's economy.
Experts agreed that increasing private sector credit implies a major boost for the economy as there is a link between credit to the private sector and economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in GDP.
Experts at Cordros Capital said they expected the reinforcement of the CBN's limit on the loans-to-deposits macro-prudential ratio for Deposit Money Banks (DMBs) to continue to drive the willingness of commercial banks to create risk assets.
A study published by the CBN concluded that “credit is growth-enhancing, even when trade openness, monetary policy, investment climate and infrastructure are low.”
The balance sheet strength of banks also determines the flow of credits, with the continuing increase in lending amidst macroeconomic headwinds underpinning Nigerian banks' resilience and stability.
In a study on ‘Balance Sheet Strength and Bank Lending During the Global Financial Crisis', researchers at the International Monetary Fund (IMF) examined the role of bank balance sheet strength in the transmission of financial sector shocks to the real economy.
The study found that, “banks with strong balance sheets were better able to maintain lending during the crisis”.
According to the study, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.
“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.
CBN governor, Dr. Olayemi Cardoso said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.
According to him, additional capital would not only provide a substantial buffer for banks against potential economic challenges, but enhance Nigeria's banks capability to support massive economic growth and play competitively globally.
Experts said that considering the increasing changing dynamics in the banking sector and the overall economy since the last recapitalisation, it had become necessary to strengthen the banks' financial positions.
Managing director, Arthur Steven Asset Management, Mr. Olatunde Amolegbe, said the increase in credit to the private sector could be attributable to increase in economic activity.
He, however, noted that other factors such as inflation and devaluation could moderate such increase.
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