Nigeria’s credit growth falls sharply in January

CBN

Industry and commerce associations lament insufficient credit to grow businesses and high rates.

The growth in Nigeria’s credit to private sector has fallen sharply from 56 per cent year on year in January 2012 to 3.3 percent year on year in January 2013. The growth, which persistently fell over the months, stood at 7.8 per cent in December.

Finance experts say this slowdown is not entirely due to a base effect.

“January’s sharp slowdown in credit growth implies downside risk to our 16-17 percent credit growth projection for 2013,” said Yvonne Mhango, Sub-Saharan Africa Economist at investment bank, Renaissance Capital. “Two consecutive months of Month-on-Month (MoM) declines in credit growth in addition to the slowdown in inflation January will add to the calls for rate cuts and a downward adjustment in the cash reserve requirement at the March Monetary Policy Committee MPC meeting”

“We believe the MPC’s view in March on external risks to the oil price, and by implication the naira, will play a significant part in its policy decision. We maintain our projection of a 100 basis point (bpt) cut in the monetary policy rate to 11 per cent by Year End 2012. Recent data releases increase the probability that a rate cut may come as soon as March,” she added.

Credit to the private sector has continued to raise concerns in the business environment. Industry and commerce associations have continued to lament insufficient credit to grow businesses and high rates.

Various recommendations have been given by finance experts ranging from easing of the Monetary Policy Rate (MPR) to relaxing of the Cash Reserve Ratio (CRR).

Lamido Sanusi, Governor of Central Bank of Nigeria, has stated that the regulatory body is in no hurry to ease monetary policy. He said that his primary concern is inflation and Foreign Exchange stability as opposed to credit growth.

What this suggests is that there may not be much policy changes at the next MPC meeting scheduled to hold next month.

Finance experts say the Monetary Policy Rate (MPR) is unlikely to be reduced by much while the Cash Reserve Ratio (CRR) is unlikely to be reduced at all. They both are currently at 12 per cent.

Mr. Sanusi said he is concerned about high interest rates but believes that the downside risks to a rate cut exceed the upside to lending and growth.

He added that he is not of the view that lower rates will trigger lending as the absence of structural reforms would continue to discourage the banks from lending and that low interest rates will not compensate for uncompetitive labour and structural constraints.

Interest rates are as high as 25-30 per cent and even at that, access to credit at these rates are difficult.

“A cut in the Monetary Policy Rate would not necessarily make banks lend money to SME’s and businesses,” Mr. Sanusi said, adding that even in a loose and accommodating environment, banks were not lending to SMEs and entrepreneurs”.

The Central Bank Governor said that banks can no longer lend money to businesses that would tie their funds down and end up in legal battles which run for years sometimes.

In the lead-up to the last meeting of the Monetary Policy Committee (MPC), there was a significant body of opinion from experts in the industry in support of the view that the Central Bank should commence the easing cycle.

Edward Kingston Associates, a research and finance analysis organisation, said despite the drop in inflation, the regulatory body is not likely to ease monetary policy.

“Our view is that the Central Bank is unlikely to commence easing of monetary policy. Notwithstanding the sharp drop in Headline Inflation, we have drawn attention to the sharp rise in Core Inflation. This is likely to be a source of concern. Furthermore, many of the sources of uncertainty to which the MPC had drawn attention remain unresolved,” the organisation said.

The responsibility of increasing access to credit would continue to be tossed from the banks, to policies of the regulatory body, to borrowers who default, to the failure of government to provide adequate infrastructure.

It is expected that with this manner of declining credit growth rate, and in the face of closing companies and job losses, the government would take responsibility and put structures in place that would make the Nigerian business environment suitable for lending, especially to small and medium scale enterprises.