By Omoh Gabriel,
The Central Bank of Nigeria CBN yesterday confirmed fears that banks were not lending enough to grow the economy.
A communique issued by the apex bank after its Monetary Policy Committee meeting in Abuja said that the low level of lending of banks to the private sector reflected the risk aversion of banks to lending to non government borrowers stating that further efforts are needed to unlock the credit market in order to enhance the flow of credit to the real economy.
The committee however observed that external reserves stood at US$37.63 billion on 23rd June, 2010 representing a decrease of US$1.19 billion or 3.06 per cent when compared with the level of US$38.82 billion as at 31st May 2010. The committee said that real Gross Domestic Product (GDP) grew by 7.23 per cent in the first quarter of 2010 up from 4.50 per cent recorded in the first quarter of 2009
The CBN said “Available data showed that in May 2010, aggregate domestic credit (net) grew by 12.38 per cent over the December 2009 level, and by 29.72 per cent when annualized, which was still below the 2010 indicative target of 55.54 per cent. Credit to government (net), which grew substantially by 50.87 per cent over end-December 2009 (or 122.1 per cent on annualized basis), was the major contributor as credit to the private sector declined, by 1.88 per cent ( or 4.51 per cent on annualized basis).
“The annualized decline in credit to the private sector of 4.51 per cent was in contrast to the growth benchmark of 31.54 per cent for 2010. This notwithstanding, the Committee observed that the DMBs new loans granted to the private sector increased from N 145.4 billion in April 2010 to N 173.8 billion in May 2010. The substantial growth of credit to government (net) against the backdrop of declining private sector credit reflected the risk aversion of the DMBs to lending to non-government borrowers. “The Committee believes that in order to provide the private sector with the necessary credit to grow the economy, further efforts are needed to unlock the credit market in order to enhance the flow of credit to the real economy. The year-on-year headline inflation declined to 11.0 per cent in
May 2010 from 12.5 per cent in April and 11.8 per cent in March.
“Similarly, the weighted average savings rate dropped marginally to 2.92 per cent in May 2010 from 3.36 per cent in December 2009. The consolidated deposit rates declined to 3.30 per cent in May 2010 from 6.13 per cent in December 2009. Thus, the spread between the average maximum lending rate and the consolidated deposit rate widened to 19.27 per cent in May 2010 from 17.34 per cent in December, 2009. The Committee noted that the key policy challenges remained the negative growth in money supply andprivate sector credit as well as the subsisting high lending rates in the face of declining
inter-bank rates.
“Core inflation fell to 8.8 per cent in May 2010 from 9.8 per cent in April and 9.5 per cent in March. The downward trend in the domestic price level could be attributed to a number of factors, including the continuing under performance of monetary aggregates, with the associated constrained demand, adequate food supply and improvement in the availability of petroleum products, amongst others. Notwithstanding these developments, the MPC reiterated its earlier position on the threat of inflationary pressure arising from several factors including the announcement effect of salary increase in the civil service and the rising food prices against the backdrop of the famine in neighbouring Niger Republic.
“The Committee restated its commitment to continue to monitor price developments with a view to taking appropriate measures to stem any inflationary threat and ensure that the downside risk of inflation to growth is minimized.
“The Gross external reserves stood at US$37.63 billion on 23rd June, 2010 representing a decrease of US$1.19 billion or 3.06 per cent when compared with the level of US$38.82 billion as at 31st May 2010. The Committee, however, noted that the current external reserves level is still adequate as it would finance 16 months of imports, compared to the internationally recommended benchmark of 3 months of import cover for a country’s external reserves.
“The Committee’s Considerations Against the backdrop of the foregoing, the MPC noted with
satisfaction the continued macroeconomic stability. It, however, stressed the need to grow the real sector on a sustainable basis. It also reiterated the possible inflation risks highlighted at the last
MPC meeting, in the light of the anticipated budget deficit and the operationalisation of the proposed Asset Management Corporation. However, monetary aggregates are still under-performing and the
Asset Management Corporation is yet to take-off. On balance, therefore, the inflation threat remained subdued in the short to
“Provisional data from the National Bureau of Statistics (NBS) indicates that real Gross Domestic Product (GDP) grew by 7.23 per cent in the first quarter of 2010 up from 4.50 per cent recorded in the first quarter of 2009. GDP was projected to grow by 7.68, 7.76 and 8.13 per cent in the second, third and fourth quarters of 2010, respectively. Overall GDP growth for 2010 is projected at 7.74 per cent which is higher than the revised figure of 6.66 per cent recorded in 2009. The non-oil sector is expected to remain the main driver of overall growth, with agriculture, wholesale and retail trade, and services contributing 2.49, 2.03 and 2.11 per cent, respectively”
