Ngozi Amuche
Fresh revelations in Nigeria’s banking sector at the weekend showed an upward swing in credit facilities provided by banks to the local economy, in the last quarter of 2018.
The indicator put the total credit input into the domestic economy at N27.5 trillion-a 4.5 per cent increase, compared to the decrease of 3.3per cent at the end of the preceding quarter.
The Central Bank of Nigeria, in its latest economic report for fourth quarter 2018, said the development reflected wholly, the 41.5per cent increase in net claims on the Federal Government, which was due to the 33.8per cent and 2.0 per cent increase in net claims on the private sector.
Some financial pundits said credit is growth-enhancing, even when monetary policy, investment climate, and infrastructures are low.
According to them, the composite local condition index revealed that private-sector credit increased economic growth, when domestic or local conditions were favourable and the absorptive capacity of the domestic economy for credit was estimated at 29per cent of the gross domestic product, in the last six years.
Conversely, relative to the level at the end of September 2018, net claims on the Federal Government also rose by 41.5per cent, to N4, 867.58trillion, at the end of 2018, compared to the increase of 4.7 per cent, at the end of the preceding quarter.
The development, according to the apex bank, was due mainly to the 28.1 per cent increase in Federal Government’s securities held by banks during the reviewed quarter, adding that on quarter basis, banking system’s credit to the private sector fell by 1.1per cent to N22, 726.57 trillion last year, in contrast to the increase of 3.1per cent at the preceding quarter. The development was as a result of the 2.1per cent decline in claims on core private sector, the CBN explained.
An investment banker, Mr. Kasali Abolarin, said globally, economies (especially those of developing countries) are sometimes subject to serious financial shocks and capital constraint, which impact negatively on macroeconomic variables, and cause the financial intermediation mechanism to suffer.
According to him, this, in turn, dislocates the central role of banks as agents of savings mobilisation and lenders for investment. “To ameliorate this trend, especially after the 2007-2008 global financial crises, central banks around the world began to adopt traditional as well as unconventional credit easing policies to inject liquidity into the banking system so as to obviate recessionary outcomes in the economy. Nigeria must continue in that line”
Abolarin however explained that public authorities in Nigeria, have in the last seven years rolled out a number of credit or development interventions with the aim of promoting income and employment expansion at both the firm and aggregate levels, build basic infrastructure and engender overall sustainable development.
Responding, Managing Director/Chief Executive of Cowry Asset Management Limited, Mr. Johnson Chukwu, said the experience of Nigeria leaves no one in doubt that capital is a prerequisite for its economic and social progress, as well as for effective policy making.
Chukwu noted that the apex bank recognizes that for the economy to function efficiently, given structural rigidities, and for the private sector to develop and flourish, businesses need to have access to credit.
“In view of the paucity of credit, coupled with the problems of inadequate infrastructure, huge skills’ gaps, and very large informal sector, the CBN and other development partners such as the Bank of Industry, the Bank of Agriculture, among others, embarked on significant credit injections to support the critical sectors of the economy,” he said.
But an economic analyst, Mr. Ruben Omene, expressed worry given the multiplicity of credit interventions by the CBN and other funding institutions. “It is plausible to express some doubts about the absorptive capacity of the economy. The basic problem of interest is that credit purveyance may lead to sub-optimal outcomes and poor resource allocation decisions, if local conditions are unfavourable which may eventually cascade into a huge stock of non-performing credit facilities”.
He noted that a number of important questions come to mind. “Does the growth-enhancing attribute of credit depend on the absorptive capacity of the economy? What are the factors constraining the absorptive capacity for further credit in Nigeria? Does the macroeconomic policy framework have any effect on domestic credit absorption? Given the absorptive capacity of the Nigerian economy, what is the threshold point beyond which credit ceases to significantly impact on growth?”, Omene queried.
He, however, advised that the Nigerian government, through the CBN, should continue to build a robust and inclusive financial system, to fast track economic growth and serve as a growth catalyst to other emerging economies in Africa.
