According to Aishah Ahmad, the Deputy Governor of the Financial System Stability Directorate at the Central Bank of Nigeria (CBN), the cost of borrowing has been increasing, and the growth of the banking industry is declining.
In a personal statement released by the CBN after the last Monetary Policy Committee meeting, Ahmad emphasized the importance of sustaining lending to critical sectors of the economy while the monetary policy tightens to control inflation.
Ahmad noted that borrowing costs have risen due to the positive correlation between market lending rates and the Monetary Policy Rate (MPR).
Despite an increase in industry credit by N4.54 trillion between the end of April 2022 and 2023, the growth rate of credit has slowed.
The monthly trend in credit growth declined from 1.31 percent in March 2023 to 0.05 percent in April 2023. Lending rates remain high as a response to the contractionary monetary policy stance. These developments highlight the need for balanced actions in pursuit of price stability.
To address this, the CBN has provided intervention loans with single-digit interest rates to selected industries and Small and Medium Enterprises (SMEs) to ensure access to affordable finance for employment-generating sectors.
This intervention aims to have a positive impact on the macroeconomy by stimulating output growth, supporting businesses’ cash flows, minimizing default risk, and preserving financial stability.
As of April 2023, the banking industry’s soundness indicators remained strong. The capital adequacy ratio stood at 12.8 percent, the non-performing loans ratio decreased to 4.4 percent (from 5.3 percent in April 2022), and the liquidity ratio was at 45.3 percent, exceeding the minimum requirement of 30.0 percent. Credit to the real sector continued to grow, according to Ahmad’s statement.
