Aishah Ahmad, the Deputy Governor of the Financial System Stability Directorate at the Central Bank of Nigeria (CBN), says the cost of borrowing has been increasing, and the growth of the banking industry is declining.
In the CBN’s recent personal statement following the last Monetary Policy Committee meeting, Ahmad underscored the significance of maintaining lending to critical sectors of the economy while implementing a tighter monetary policy to control inflation.
Ahmad acknowledged the rise in borrowing costs attributed to the direct relationship between market lending rates and the Monetary Policy Rate (MPR).
Despite a substantial increase of N4.54 trillion in industry credit between April 2022 and 2023, the growth rate of credit has decelerated.
The monthly trend in credit growth witnessed a decline from 1.31 percent in March 2023 to 0.05 percent in April 2023. Lending rates continue to remain high due to the contractionary monetary policy stance. These developments emphasize the need for well-balanced measures in pursuit of price stability.
To address this concern, the CBN has introduced intervention loans with interest rates in the single digits for selected industries and Small and Medium Enterprises (SMEs). This initiative aims to ensure accessible and affordable finance for sectors that generate employment.
The objective of this intervention is to positively impact the macroeconomy by fostering growth in output, supporting the cash flows of businesses, minimizing the risk of default, and maintaining financial stability. As of April 2023, the banking industry’s indicators of soundness remained robust. The capital adequacy ratio stood at 12.8 percent, the non-performing loans ratio decreased to 4.4 percent (down from 5.3 percent in April 2022), and the liquidity ratio stood at 45.3 percent, surpassing the minimum requirement of 30.0 percent. Ahmad’s statement confirmed that credit to the real sector continued to grow.