CBN: Consumer credit rises by 2.1% to N1.88trn

Owing to an increase in personal loans, consumer credit increased by 2.1 per cent to N1.88 trillion in August, from N1.84 trillion in July, the Central Bank of Nigeria (CBN) has said.

 

The apex bank, which disclosed this in its monthly economic report for August 2021 released last week, stated that the value represented 8.6 per cent of the total credit to the private sector in August and 0.1 percentage points higher than its share in the preceding month. It further stated that personal loans accounted for the largest share of 75.1 per cent of the consumer loans, while retail loans made up the balance of 24.9per cent.

Specifically, the report stated: “Total consumer credits extended by the Other Depository Corporations (ODCs) grew by 2.1 per cent to N1,880.38 billion in August, from N1,842.55 billion in July. This value represents 8.6 per cent of the total credit to the private sector in August and 0.1 percentage points higher than its share in the preceding month.

 

“A breakdown of consumer loans showed that personal loans continued to dominate, accounting for 75.1 per cent, an increase of 1.5 percentage points, above the level in the preceding month, while retail loans accounted for the balance of 24.9 per cent, representing a decline of 1.5 percentage points, compared with its level in July.”

 

According to financial experts, a personal loan is an amount of money borrowed from a bank, credit union or online lender, which is repaid over time, usually with interest. New Telegraph’s analysis of data obtained from CBN shows that in recent months, personal loans have consistently accounted for the bulk of total credit extended to the private sector.

 

For instance, in its economic report for May, the apex bank stated: “Consumer credit outstanding, at N2,138.17 billion in May 2021, rose by 24.2 per cent, above  the level of N1,721.49 billion in April 2021.

 

It constituted about 10.2 per cent of credit to the private sector, compared with 8.3 per cent in the preceding month. The increase in the ratio reflected increased loans to economic agents, aimed at reinvigorating the economy.

 

“A breakdown of consumer loans showed that personal loans accounted for the largest share at 58.3 per cent. This was 13.3 percentage points below the level in April 2021, while retail loans, which grew by 13.3 per cent above the April figure accounted for 41.7 per cent of the total consumer loans as at end- May 2021.”

 

Similarly, CBN said in its economic report for July that “consumer credit outstanding rose marginally, by 0.1 per cent to N1,842.55 billion in July 2021, from N1,840.24 billion in June 2021. This value represents 8.5 per cent of the total credit to the private sector in July 2021.

 

The increase was hinged, mainly, on the decline in prime lending rates, precipitating an increase in the quantum of loans. “A breakdown of consumer  loans showed that personal loans accounted for the largest share of 73.6 per cent, while retail loans made up the balance of 26.4 per cent.”

 

According to CBN, the steady growth of consumer credit has been sustained by the ease in monetary conditions, occasioned by its accommodative policy stance. Indeed, the consensus among analysts is that the increase in bank credit to the private sector has been mainly driven by the implementation of CBN’s minimum Loan-to- Deposit Ratio (LDR) policy.

 

As part of its measures to compel deposit money banks (DMBs) to increase lending to the real sector of the economy, CBN had, on July 3, 2019, directed lenders to maintain a minimum LDR (portion of customers’ deposit that is given out as loans) of 60 per cent by September 30, 2019.

 

It stated that failure to comply with the directive will result in a levy of additional Cash Reserve Requirement (CRR) equal to 50 per cent of the lending shortfall of the target LDR.

 

 

The apex bank, which had also stated that the LDR would be subject to quarterly review, later raised the LDR target by another 5.0ppts to 65.0 per cent and set a compliance deadline of December 31, 2019.

 

Assessing the impact of the LDR policy on the economy in a report earlier in the year, analysts at Coronation Research said that efforts by lenders to comply with the rule resulted in banking sector credit to the economy growing from N15.5 trillion at the end of Q2’19 to N22.04 trillion at the end of Q2’21.

 

The analysts also stated that the implementation of the policy had changed the structure of the economy’s loan composition as oil & gas and real estate sectors loans now make up much less as a share of total loans compared with prior to the introduction of the LDR directive.

 

They pointed out that “in the six quarters before the directive, aggregate loans were declining by an average of 0.5 per cent every quarter. However, post-directive, aggregate loan growth has accelerated to an average of 4.5 per cent per quarter.”

 

Although they noted that the low yield environment, following the segregation of the Treasury bills market, may have also contributed to the surge in banking sector credit to the economy-given that this gave lenders an incentive to create risk assets to increase profit, the analysts asserted that “overall, on the credit growth front, it can be said that this (LDR directive) was an easy policy win.”