Nigeria’s banking sector has demonstrated a remarkable resilience in private sector credit growth, despite the Central Bank of Nigeria’s (CBN) tightened monetary policy aimed at curbing inflation and stabilizing the economy. The latest data from the CBN shows that net domestic credit to the private sector surged by 33% year-on-year (y/y) in July 2024, reaching a total of N75.4 trillion.
This significant growth is attributed to several factors, including the rise in foreign currency-denominated loans, driven by the substantial depreciation of the naira over the past year. Businesses have sought loans in more stable foreign currencies, contributing to the growth in private sector credit.
Additionally, banks have experienced substantial deposit increases, enabling them to extend new loans and advances. Experts suggest that banks are well-positioned to continue creating more loans due to aggressive growth strategies and a favorable regulatory environment.
The growth in private sector credit is a positive indicator of the sector’s vitality and the expanding reach of financial services beyond traditional banking channels. However, the CBN’s restrictive monetary stance is likely to exert further pressure on the rate of credit expansion, shaping the financial landscape as the Central Bank seeks to balance economic stability with growth.
Despite the challenges, credit penetration, as reflected in the private sector credit to GDP ratio, stands at 33% for 2023, up from the historical average of approximately 20%. While this marks an improvement, Nigeria still lags behind the Sub-Saharan Africa average of 34.5% and the global average of 147.6%, according to World Bank data.
Looking forward, analysts anticipate that private sector credit growth will continue to decelerate in the coming months, as the CBN’s restrictive monetary stance takes hold. Nevertheless, the banking sector’s resilience and adaptability will be crucial in navigating the complex economic landscape and supporting Nigeria’s economic growth.