How Easing Monetary Condition Is Boosting Consumer Credit

Consumer credit outstanding rose marginally, by 0.1 per cent to N1.842 trillion in July 2021, from N1.840 trillion in June 2021, according to the latest economic report of the Central Bank of Nigeria (CBN).

The ease in monetary conditions, owing to the accommodative policy stance of the CBN, contributed to sustaining the growth of consumer credit.

The CBN has kept the Monetary Policy Rate (MPR) at 11.5 percent since September 2020 from 12.5 percent previously.

The 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.

Credit extended to the private sector increased by 15.7 per cent, leading to a 5.7 per cent rise in domestic claims on the economy.

The increase in bank credit to the private sector was attributed to an uptick in economic activities, as shown by a rise in both the manufacturing and nonmanufacturing Purchasing Managers Index (PMI), to 46.6 index points and 44.6 index points at end the of July 2021, from 45.5 index points and 43.0 index points in June 2021, respectively.

According to the report, growth in broad money in July 2021 was driven, largely, by the increase in domestic claims, particularly credit to the private sector, thus, supporting the push for higher growth and employment generation.

Claims on the domestic economy grew by 5.7 per cent to N44.98 trillion, compared with the growth of 3.8 per cent at end-June 2021. The growth was due to an increase in claims on ‘other’ sectors, which contributed 7.0 percentage points to the growth in broad money (M3).

The various intervention schemes reinforced the sustained growth in domestic claims by the CBN. Net Foreign Assets (NFA) also grew by 1.8 per cent to N7.472 trillion at the end of July 2021, driven majorly by the 37.2 per cent reduction in short-term foreign liabilities.

In terms of contributions, the report stated that the domestic claims and NFA contributed 6.3 percentage points and 0.4 percentage points to the growth in M3, respectively, during the review period.

Correspondingly, growth in total monetary liabilities was due to growth in transferable deposits and ‘other’ deposits of depository corporations. This was driven by the desire of economic agents to hold less cash, supported by the decline of 5.1 per cent in currency outside depository corporations (CODCs). While transferable and ‘other’ deposits contributed 1.1 percentage points and 4.5 percentage points, respectively, to the growth in M3, CODCs (-0.3 percentage point) and ‘securities other than shares’ (- 2.3 percentage points) pulled growth in M3.

At the last Monetary Policy Committee (MPC) meeting on November 23, 2021, members welcomed the continued resilience of the banking system in the face of severe shocks to both the domestic and global economies, commending the CBN’s management for maintaining overall stability in the banking system.

The Committee called on the Bank to continue to push for increased intermediation as the way forward to reduce unemployment, enhance production, create wealth, and improve aggregate demand to strengthen the recovery.

On this note, members applauded the success achieved by the Bank’s various intervention schemes, which have contributed to both the demand and supply sides of the economy. The Committee reviewed the performance of the Bank’s various interventions aimed at sustaining recovery of output growth and addressing the downside risks to other external and domestic shocks to the economy. Interventions continued largely in manufacturing/industries, agriculture, energy/infrastructure, healthcare and Micro, Small and Medium Enterprises (MSMEs). Under the Targeted Credit Facility, the Bank has disbursed a total of N363.49 billion to 766,719 beneficiaries, comprising 638,070 households and 128, 649 small businesses. Under its Agribusiness Small and Medium Enterprise Investment Scheme (AgSMEIS), the Bank has released N134.63 billion to 37,571 entrepreneurs.