Consumer credit outstanding declined by 10.15 per cent to N4.25 trillion in the third quarter of this year compared with N4.73 trillion in the previous quarter, the Central Bank of Nigeria (CBN) has said.
The apex bank, which disclosed this in its third quarter 2024 economic report released yesterday, stated that while personal loans fell to N3.15 trillion, from N3.47 trillion in Q2’24, they remained dominant, accounting for 74.14 per cent of total consumer credit, while retail loans constituted the balance.
The report said: “Sectoral credit utilisation increased by 5.13 per cent to N58.57 trillion in Q32024, compared with N55.71 trillion in the preceding quarter.
The services sector maintained dominance in receipt of credit to key sectors of the economy, utilising 53.08 per cent, followed by industry and agriculture which accounted for 42.98 and 3.94 per cent, respectively.
“Consumer credit outstanding declined by 10.15 per cent to N4.25 trillion in Q32024 compared with N4.73 trillion in the preceding quarter.
Consequently, personal, and retail loans declined to N3.15 trillion (9.22 %) and N1.10 trillion (12.70 %), from N3.47 trillion and N1.26 trillion, respectively, in the preceding quarter. Personal loans remained dominant, accounting for 74.14 per cent of total consumer credit, while retail loans constituted the balance.”
Consumer credit refers to no-collateral, short- and intermediate-term loans, extended by banks or online lenders, to finance the purchase of commodities or services for personal consumption or to refinance debts incurred for such purposes.
Analysts attribute the decline in consumer credit in Q3’24 compared with the previous quarter to the monetary policy tightening measures introduced by the CBN in its bid to tackle soaring inflation.
Financial experts also believe that the apex bank’s downward adjustment of the Loan-to-Deposit Ratio (LDR) from 65 per cent, to 50 per cent, in April, likely contributed to the decline in consumer credit during the period.
The LDR is used to assess a bank’s liquidity by comparing a bank’s total loans to its total deposits within the same period.
The regulator introduced its LDR policy in July 2019, as part of measures to encourage DMBs to increase lending to the private sector.
The regulator initially raised the required minimum LDR to 60 per cent effective end of September 2019, but later raised it to 65 per cent. However, in April, this year, it reduced the LDR to 50 per cent.
Announcing the reduction in the LDR in a circular signed by Adetona Adedeji, Acting Director of the Banking Supervision Department, the CBN said that the adjustment, reflected the increase in the Cash Reserve Ratio (CRR) for banks, adding that the move was aimed at aligning the LDR policy with its monetary policy tightening stance.
It said: “Following a shift in the bank’s policy stance towards a more contractionary approach, it is imperative to review the loan-to-deposit ratio (LDR) policy to align with the current monetary tightening by the CBN.
“Accordingly, the CBN has decided to reduce the LDR by 15 percentage points to 50 per cent, in a similar proportion to the increase in the CRR rate for banks.”
Meanwhile, the bank’s Q3’24 economic report stated that: “Average banking system liquidity declined in Q32024, relative to the level in the preceding quarter driven, mainly, by withdrawals via monetary operations.
“Withdrawals from the banking system through Standing Lending Facility (SLF) repayment, cash reserve ratio (CRR) debits, open market operations (OMO) sales, Nigerian Treasury Bills (NTBs) sales, FX-OMO swap settlement, among others moderated the level of liquidity in the banking system in the review quarter.
Consequently, average net industry balance declined by 40.63 per cent to N0.16 trillion from N0.27 trillion in the preceding quarter.”
