Lending to real sector non-existent despite release of N400bn by FG — Oniha, DMO boss

Debt Management Office (DMO), Ms. Patience Oniha

…As Credit to private sector rises by N633bn in February***

Director General of the Debt Management Office, DMO, Ms. Patience Oniha, has said that Nigerian banks are still refusing to lend money to the real sector despite that the federal government’s release of about N400 billion into the economy last December to redeem some government securities.

Speaking at the Vanguard Economic Discourse in Lagos last weekend, Oniha said that with more money available in the system and interest rates on government securities down from 18 percent to 14 percent, lending to the private sector is still non-existent.

Oniha said, “Since December last year, in terms of releasing capital into the economy, we had redeemed about N400 billion of government securities and those monies are in the system.

What should bother us is, with more money available in the system, with interest rates on government securities down from 18 percent to 14 percent at most, what is constraining lending to the private sector? Is it that the banks are not willing to take the risk? We have released money and the interest rates have come down, then what is it that is constraining the flow of capital at lower rates? Rates have dropped and to the real sector that is where production will come from and I can assure you that is one of our objectives.’’

On the federal government’s economic blueprint Oniha stated: ‘‘One perspective is to achieve sustainable growth, however I agree that we are just in the process of recovering. I think a very critical element is how to diversify the economy.

Meanwhile, credit to private sector  rose by N633  billion to N22.6 trillion  in February, surpassing credit to the government which rose by N161 billion  to N4.29 trillion during the month.

The above, which indicates increased willingness by banks to lend to businesses and households,  contradicted the trend in January, when credit to the private sector fell by N300 billion while credit to the government rose by N284 billion. Analysts at Lagos based Cowry Asset Management Limited attributed the increase in credit to government in February to investors’  preference for safe assets.

“The increase in credit to the government was, in part, informed by the sustained preference for safe assets by lenders despite the moderation in yields since the inception of the year as Federal Government planned to restructure its debt profile in 2018”, they said. Meanwhile, banks lost N96 billion current account deposits in two months, January and February.

According to the Depository Corporation survey for February released by the Central Bank of Nigeria (CBN) last week, banks’ demand (current account) deposits fell for the second consecutive months by N34 billion in February to N9.16 trillion. In January, banks’ demand deposits dropped by N64 billion to N9.2 trillion.

Thus, banks lost N96 billion in demand deposits in the first two months of the  year. The Depository Corporation survey for February showed Broad Money  increased by 0.79 percent month-on-month (m-o-m) to N24.02 trillion in February 2018 as a 7.89 percent  m-o-m increase in Net Domestic Assets (NDA) to N9.62 trillion partially offset a 3.46 percent   m-o-m decrease in Net Foreign Assets (NFA) to N14.40 trillion.

On domestic asset creation, the increase in NDA  was driven by  a 4.11 percent   increase in Net Domestic Credit (NDC) to N26.91 trillion, offset by a 2.13 percent   m-o-m increase in Other Liabilities (net) to N17.29 trillion in the month under review. Further breakdown of NDC showed a 2.88 percent   m-o-m increase in Credit to the Private sector to N22.62 trillion, that constituted 84 percent   of the NDC, accompanied by  11.17 percent   increase in Credit to the Government to N4.29 trillion.

On the liabilities side, increase in Broad Money followed a 1.81 percent  m-o-m increase in Quasi Money (near maturing short term financial instruments) to N13.29 while Narrow Money fell to N10.78 trillion (of which Demand Deposits fell by 0.35 percent to N9.16 trillion) in 2018. Meanwhile, Reserve Money (Base Money) increased m-o-m by 6.38 percent  to N6.45 trillion as bank reserves rose m-o-m by 10.49 percent  to N4.17 trillion while Currency in circulation fell m-o-m by 0.42 percent  to N1.94 trillion.