‘Banks’ decreasing appetite for risk assets, shrink credit to private sector’

Indications have emerged that declining credit to the private sector is traceable to the decreasing interest in risk assets by lenders in the face of safe assets that have been yielding high returns.

In the just concluded week, Central Bank of Nigeria’s depository corporations survey showed a 2.49 per cent month-on-month (m-o-m) increase in broad money to N22.50 trillion in October, as Net Foreign Assets (NFA) increased m-o-m by 23.35 per cent to N12.40 trillion, thus offsetting a m-o-m 15.12 per cent fall in Net Domestic Assets (NDA) to N10.10 trillion.

Experts describe broad money as a measure of the money supply that includes more than just physical money such as currency and coins (also known as narrow money). It generally includes demand deposits at commercial banks, and any monies held in easily accessible accounts.

According to dealers from Cowry Assets Management Limited, a breakdown of Net Domestic Assets (NDA) showed a 5.69 per cent month-on-month (m-o-m) increase in credit to the government to N5.25 trillion accompanied by a 0.42 per cent decline in credit to the private sector to N21.93 trillion as the public sector continued to crowd-out the private sector.

In its weekly analysis of the financial system released over the weekend, the assets managers noted that increase in broad money also followed a 1.83 per cent m-o-m increase in quasi money (near maturing short term financial instruments) to N12.11 trillion, accompanied by a 3.27 per cent rise in narrow money to N10.39 trillion of which demand deposits increased by 3.48 per cent to N8.93 trillion. Indicative of tightened monetary policy conditions, reserve money (base money) also increased m-o-m by 3.65 per cent to N5.76 trillion as bank reserves increased m-o-m by 5.62 per cent to N3.62 trillion while currency in circulation rose m-o-m by 0.57 per cent to N1.79 trillion.

“Hence, the increase in NFA resulted from increase in foreign exchange reserves position as well as increase in foreign portfolio inflows (FPIs). On domestic asset creation, the increase in NDA resulted from a 0.70 per cent m-o-m rise in Net Domestic Credit (NDC) to N27.17 trillion, accompanied by a 13.19 per cent increase in Other Liabilities (net) to N17.07 trillion,” the assets managers stated.