Bank loans to business sectors increase to N75.5 trillion.

N2.3tr growth in a single month
In July 2024, bank credit to the private sector increased by around N2.3 trillion to over N75.5 trillion, indicating a roughly 34% rise in just the previous year.

According to the most recent data on credit to the private sector (CPS) received from the Central Bank of Nigeria (CBN), bank loans and other facilities to the private sector have increased by almost a third, demonstrating the banking sector's resiliency and contribution to the economy.

CPS increased by N19.02 trillion, or 33.7%, to N75.48 trillion in July 2024 from N56.46 trillion in July 2023, according to the study.
A breakdown showed that CPS rose by N2.29 trillion, or 3.1%, to N75.48 trillion in July 2024 compared with N73.19 trillion in June 2024.
Loans, trade credits, and other account receivables and supports that banks give to the private sector over time are included in the CPS. The CPS is a worldwide indicator of the banking industry's ability to support national economic agendas and maintain strong balance sheets.

The most recent study emphasised how banks are expanding their operations and providing capital to the economy's productive sector.
According to a CBN report, deposits in Nigerian banks increased significantly in the first half of this year. The report stated that banks’ demand deposits climbed from N26.7 trillion recorded at the end of December 2023 to N33.0 trillion by June 2024.

Over the course of the quarters, deposits at banks had grown steadily. Total demand deposits in the first quarter ended March 2024 had risen by 8.1 per cent to N28.9 trillion. In the second quarter ended June 2024, banks’ deposits increased by14.3 per cent to N33 trillion.
Nearly all banks had seen considerable increases in deposits in recent years, allowing the headroom for most banks to generate new loans and advances.

Experts claimed that because of their ambitious expansion strategy and the supportive regulatory framework, banks are well-positioned to continue making additional loans.

Significant increases in deposits were reported in the operational reports of banks in 2023. For example, according to certified records, Access Holdings' deposits increased from N6.10 trillion in 2022 to N9.4 trillion in 2023 for the year that concluded on December 31, 2023. Deposits at Zenith Bank increased to N11.43 trillion from N5.86 trillion. Compared to N5.25 trillion in 2022, FBN Holdings reported deposits of N7.85 trillion in 2023. United Bank for Africa (UBA)’s deposits doubled from N4.83 trillion in 2022 to N9.32 trillion in 2023. Guaranty Trust Holding Company’s deposits increased from N3.47 trillion to N5.22 trillion.

A previous assessment on capital importation into the country had also showed that banks attracted roughly two-third of capital importation into the country. Experts had stated that this indicated a level of trust in the Nigerian banks as foreign investors gradually take more active stance in the nation’s economy.
Experts agreed that increase private sector credit implies a major boost for the economy as there is a link between credit to the private sector and the economic growth. Several studies have continuously found that increased lending by banks directly leads to increase in Gross Domestic Products (GDP).

Experts at Cordros Capital said the trend in credit to private sector may continue in the period ahead.

“We believe the re-enforcement of the CBN’s limit on Deposit Money Bank’s loans-to-deposits macro-prudential ratio will continue to drive the willingness of commercial banks to create risky assets over the short to medium term,” Cordros Capital stated.
Analysts however noted that the apex bank’s intensified monetary policy tightening measures could tether the magnitude of growth going forward.

As per the findings of a CBN study, "credit promotes growth regardless of trade openness, monetary policy, investment climate, and infrastructure levels." The study discovered that credit to the private sector boosts economic expansion.

The quality of a bank's balance sheet influences the flow of credit as well. The resilience and stability of Nigerian banks are largely derived from their consistent growth in lending notwithstanding macroeconomic challenges.
The International Monetary Fund (IMF) looked at the role that bank balance sheet strength played in the real economy's ability to absorb shocks from the financial sector in a study titled "Balance Sheet Strength and Bank Lending During the Global Financial Crisis."

According to the report, "banks that maintained lending during the crisis were better able to maintain their balance sheets."

As per the research, banks that were ex-ante more dependent on market funding and had lower structural liquidity reduced the supply of credit more than other banks.
“However, higher and better-quality capital mitigated this effect. Our results suggest that strong bank balance sheets are key for the recovery of credit following crises, and provide support for regulatory proposals under the Basel III framework,” IMF report stated.
The expansion in loans to the private sector may be related to a rise in economic activity, according to Mr. Olatunde Amolegbe, Managing Director of Arthur Steven Asset Management.

He did, however, note that there was potential for other variables, such devaluation and inflation, to restrain this development.
Dr Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), stated that a broad distribution of financing is necessary across all levels of businesses and industries because the credit outlook is still cautious.

He claims that there are serious issues with the way credits are distributed among industries and businesses, with small enterprises—which are more important for fostering economic inclusion and job creation—likely to suffer significant consequences.
He mentioned that banks are typically leery of credit risk issues related to lending to small businesses and certain sectors, adding that efforts should be made to drive inclusive and stable credit access to all sectors including growth and employment elastic sectors such as agriculture, manufacturing, real estate, mining and construction among others.
CBN Governor, Dr. Olayemi Cardoso, has said the ongoing recapitalisation would strengthen banks further to drive the $1 trillion national economic target and support stable growth in the economy.

He said that more capital will help Nigeria's banks achieve significant economic growth and compete worldwide, in addition to provide a significant buffer against future economic crises.

The consensus among experts was that, since the last recapitalisation, the banking industry's dynamics have changed significantly, and as a result, strengthening the banks' financial positions has become imperative.