Private Sector Gets N2.3trn Credit from Bank In July

Despite the high cost of funds in the country, the private sector in the country had been able to access up to N2.293 trillion in the month of June as total credit from the banking industry rose to N75.484 trillion at the end of July

Data from the Central Bank of Nigeria showed the increase in banks’ lending to the private sector in the month of July compared to N73.191 trillion in June this year.

Cost of funds has been on the rise with the benchmark interest rate, Monetary Policy Rate (MPC) at a high of ….. However, lending to the government has continued to decline dropping by N4.926 trillion from N23.923 trillion in June to N19.006 trillion in July.

As at the end of last month, net domestic credit stood at N94.491 trillion, down from N97.124 trillion in June prompted y the decline in the lending to government.

Meanwhile, currency in circulation surged to an unprecedented N4.05 trillion in July 2024, marking an all-time high. This figure represents an 11.05 per cent increase since the beginning of the year and a significant 56.17 per cent rise compared to the same period in 2023.

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The year began with N3.65 trillion in circulation in January 2024, a stable figure reflecting a typical post-holiday economic environment. February saw a modest rise to N3.69 trillion, a 1.18% increase from January, while March recorded a more substantial jump to N3.87 trillion, marking a 4.76 per cent month-on-month increase. The upward trend persisted in April, with the currency in circulation hitting N3.92 trillion, up by 1.39 per cent from March, driven by heightened consumer spending during the Easter period.

May and June continued this trajectory, with the currency in circulation reaching N3.97 trillion in May and peaking at N4.04 trillion in June, representing monthly increases of 1.07 per cent and 2.11 per cent, respectively.

Experts have attributed this trend to a growing lack of confidence in the banking system, as more Nigerians opt for cash transactions amid economic uncertainty. This shift was particularly notable since September 2023, when Olayemi Cardoso assumed office as CBN Governor, with currency in circulation then standing at N2.76 trillion.

Despite this surge in currency circulation, Nigeria’s economic growth remains sluggish, with a projected growth rate of 2.9 per cent to 3.1 per cent for 2024, among the slowest in West Africa. The National Bureau of Statistics (NBS) reported a 3.19 per cent year-on-year growth in real Gross Domestic Product (GDP) for Q2 2024, slightly up from 2.98 per cent in Q1 2024 and 2.51 per cent in Q2 2023.

Inflation, however, continues to be a pressing concern, with the headline inflation rate climbing to 33.40 per cent in July 2024, up from 29.9% in January, according to the NBS.

In response, the CBN’s Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) to a record 26.75 per cent in an effort to curb inflation and stabilize the economy. This move underscores the CBN’s commitment to aggressive monetary tightening amidst ongoing economic challenges.

Analysts suggest that the spike in currency circulation may be indicative of increased government spending aimed at mitigating the hardships faced by Nigerians. However, this influx of money into the economy has also fueled inflationary pressures. David Adnori, Vice President of Highcap Securities Limited, explained that increased government spending leads to higher inflation, as more money in circulation drives up the cost of goods and services, ultimately eroding purchasing power.

“The current economic situation in Nigeria reflects the classic trade-off in economic policy,” Adnori said. “While increased spending may boost income in the short term, it also leads to higher inflation, reducing the real value of earnings and diminishing purchasing power.”