Zenith, UBA, GTBank and Others Slash SME Loans as CBN Removes Daily Limits on Savings

The nation's commercial banks have witnessed a remarkable increase of N20.8 trillion in their lending to the private sector over the past year, with the total reaching an impressive N62.52 trillion in 2023.

The year-on-year growth of private sector credit extension (PSCE) stood at 49.78%, climbing from N41.74 trillion in December 2022 to N62.52 trillion by December 2023, as per the Central Bank of Nigeria's (CBN) records.

Despite the stringent regulatory frameworks implemented by the CBN, this growth has been reported by ThisDay.

FBNQuest, in its analysis, highlighted that the CBN's data encompasses loan activities across the banking sector, including a variety of banking entities.

After the CBN's modification of its policy in September 2023, which involved removing the N2 billion daily limit on deposits through the Standing Deposit Facility (SDF), there was a noticeable shift in lending patterns. The SDF acts as a depository tool where banks can park their excess funds at the central bank, earning interest in return. This mechanism is integral for the central bank in regulating monetary liquidity and setting interest rates.

Post-policy change, there was a decline in lending, with figures dropping from N59.51 trillion in August to N56.95 trillion in September, and further down to N59.74 trillion in November from N63.57 trillion in October 2023.

Olumide Sole, a banking research analyst with Vetiva Capital Management Limited, suggested to ThisDay that the decline in private sector lending could be attributed to the banks' risk management strategies in response to policy changes by the new administration. A significant factor in this shift is attributed to the changes in the SDF policy.

Olumide elaborated that banks now have the option to liquidate their surplus assets through the SDF, securing a risk-free return of 15.75%, rather than taking on the higher risks associated with private sector lending.

Dr. Muda Yusuf, Director/CEO of the Centre for the Promotion of Private Enterprise (CPPE), pointed out that bank credit is predominantly directed towards the oil and gas sectors, with less than 1% allocated to SMEs. He emphasized the crucial role of SMEs in economic development and noted the challenges in realizing significant impacts without sufficient credit support for this sector.

Vice President David Adnori of Highcap Securities Limited remarked that the additional N20.8 trillion in credit to the private sector has not had a significant impact on Nigeria's macroeconomic conditions. He suggested that if there were any positive effects from this increased lending, they would likely be reflected in the nation's inflation rates, which continue to rise, indicating that the financed activities are not enhancing the supply side of the economy.

Furthermore, it was reported that in the last 13 days, a staggering N2.41 trillion has been deposited by Nigeria's Deposit Money Banks (DMBs) and commercial banks with the CBN through the Standing Deposit Facility (SDF), underscoring the banks' preference for parking surplus liquidity in a bid to earn interest, following the CBN's decision to lift the savings account limit.