Nigeria’s credit to its private sector saw a modest rise in October after it slipped to an 18-month low in the previous month, signalling a rebound as monetary authorities slashed key benchmark interest rates for the first time in five years in September.
Private Sector Credit Extension (PSCE) grew 2.6 percent to N74.41 trillion in October, up from N72.53 trillion in the previous month, suggesting a renewed lending appetite to private firms, according to the latest data from the Central Bank of Nigeria (CBN).
The data further revealed that bank reserves dropped from N34.67 trillion in September to N31.58 trillion, representing an 8.9 percent month-on-month decrease, driven more by a liquidity expansion by credit flows than reserve accumulation.
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At its September Monetary Policy Committee (MPC) meeting, authorities cut interest rates by 50 basis points (bps) to 27 percent, aiming to support growth as inflation continues to cool for the seventh consecutive month to 16 percent.
But the MPC, in an unexpected move, held rates steady in its November meeting while adjusting the asymmetric corridor around the Monetary Policy Rate (MPR) to +50/-450 bps, from +250/-250 bps previously, signalling a subtle shift towards easing monetary conditions even as the key rate remained unchanged.
“The cheaper access to the CBN’s lending window and the sharply lower remuneration for deposits will discourage banks from sterilising funds and could push more liquidity into the interbank market,” analysts at Lagos-based finance and research firm FMDA wrote in a note on Wednesday.
“This adjustment reduces the likelihood of sharp spikes in overnight rates, even if reserve balances tighten. Credit to the private sector may further increase in November and December.”
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The MPC also reduced its Standing Deposit Facility (SDF) rate by 200 basis points to 22.5 percent from 24.5 percent, a move that’s aimed at discouraging banks from placing excess funds in the SDF window. This is intended to stimulate lending to the real sector rather than parking liquidity with the CBN.
The Standing Lending Facility (SLF) was equally slashed from 29.5 percent to 27.5 percent, seeking to incentivise borrowing by commercial banks, which will likely support credit creation and economic activity, in extension.
“The corridor adjustment complements the MPC’s anti-inflation stance by supporting investment and productive activities without signalling strong monetary easing,” analysts at Lagos-based FBNQuest Merchant Bank wrote in a note on Wednesday.
Money supply rose to N119.04trn
Money supply (M3) rose slightly by 1.1 percent to N119.04 trillion in October compared to N117.78 trillion in the prior month, signalling a mild liquidity expansion following the late-September policy easing. M2 also rose to N119.03 trillion, up from N117.77 trillion in September.
The CBN data also revealed that Net Foreign Assets (NFA) declined sharply by 16.5 percent to N34.80 trillion from N41.66 trillion in September, reflecting lower FX asset buffers during the reviewed month.
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Net Domestic Assets, however, increased by 10.7 percent to N84.23 trillion, compared to N76.12 trillion in September, driven by stronger domestic credit expansion.
Credit to the Government rose to N24.79 trillion, up from N24.16 trillion in September, continuing the government’s increased borrowing trajectory.