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Credit to the Private Sector (CPS) experienced a significant 27.3% year-on-year increase, reaching N75.96 trillion in November, as revealed by the Central Bank of Nigeria’s (CBN) latest economic report.
This growth in credit allocation to critical sectors of the economy has been linked to the CBN’s decision to reduce the Loan-to-Deposit Ratio (LDR) from 65% to 50% and its rigorous monitoring of banks’ compliance with the policy.
Analysts at Codros Securities noted, “The continuous rise in CPS reflects the CBN’s enforcement of the 50% loan-to-deposit ratio and the impact of currency depreciation on banks’ foreign-denominated assets.”
Similarly, credit to the government reached a record N39.62 trillion in November, marking a 54.4% year-on-year increase from N25.66 trillion in November 2023. This surge highlights the government’s growing reliance on domestic banks for deficit financing.
Broad money supply (M3) also recorded a notable expansion, increasing by 51.3% year-on-year to N108.97 trillion, driven by growth in quasi-money (+61.3% year-on-year) and narrow money (+38% year-on-year). On a month-on-month basis, CPS rose by 2.5% in November.
The analysts further projected that CPS would continue to grow in the short term. They stated, “The re-enforcement of the CBN’s 50% LDR for deposit money banks (DMBs) will likely sustain the willingness of commercial banks to create risk assets. However, we acknowledge that increased monetary policy tightening measures may constrain CPS growth.”
In November, Nigeria’s inflation rate climbed to 34.60% from 33.88% in October 2024. Historical data shows Nigeria’s inflation rate has averaged 13.90% since 1996, peaking at 47.56% in January 1996 and hitting a record low of -2.49% in January 2000.
The CBN’s recent decision to lower the LDR from 65% to 50% aligns with its strategy to manage rising inflation. The bank explained that the adjustment complements its broader monetary tightening plan and directed all commercial banks to maintain the revised LDR while ensuring compliance through average daily assessments.
According to the CBN, the LDR is essential for assessing banks’ capacity to lend responsibly, manage risks, and maintain financial system stability. It emphasized that combating inflation involves not just controlling the volume of credit issued by banks but also improving the quality of those credits.
“Ultimately, our objective is to combat inflation, and we will take every necessary measure to achieve that,” the apex bank affirmed.
The CBN disclosed that its reliance on LDR as a monetary policy tool began in 2019, following a slowdown in credit growth. Initially set at 60%, the LDR was later raised to 65% before being reduced to 50% in recent policy adjustments.
“This policy ensures that funds flow into the real sector of the economy. To effectively combat inflation, a balance must be achieved between monetary policy tools and other economic measures,” the CBN concluded.
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