A big one: “The Central Bank of Nigeria (CBN) has revealed a notable reduction in loans extended to the private sector, with credit dropping to N71.21 trillion in March. This figure reflects a significant month-on-month decline of 11.93 percent or N9.65 trillion compared to February’s record of N80.86 trillion.”

Let me defend banks here: they did not reduce their efforts to give loans to companies. What happened was many companies did not want to take loans due to the high interest rates, anchored on the prime rate which was set by the apex bank.

In our portfolio companies, three of our companies which were approached by a bank to give them credits, rejected the offers, because of the high interest rates (and nonsensical collaterals). The companies could not model how they could pay the rates while advancing their missions.

Good People, our high interest rates are partly driven by the Central Bank of Nigeria. If Nigeria’s prime lending rate is about 15% (see here), the least any bank could offer loans is at about 21% (unless the fund is coming from a development finance institution like AfDB). [A bank will add insurance, operation cost, profits, etc, and when all is done, you have at least a 23% interest rate for customers].

So, with lesser funds going into companies, production will drop, and if that happens, Supply of goods and services will drop to the market. When supply drops, and demand remains the same, ceteris paribus, price goes up. Hence, CBN’s mission to tame inflation will struggle since it is reducing Supply via its monetary policy which has negligible impacts on Demand, especially at the consumer side since few customers get credits in Nigeria. This is why Nigeria has struggled to achieve any positive inflation control for years! We must try new ideas!

One of those ideas could be to offer rebates to companies thereby making sure only companies doing productive things will see their interest rates reduced. That way, you do not reduce rates to scale consumption.

Banks’ loans to the private sector dropped by nearly N10tn in March – Central Bank of Nigeria (CBN)

The Central Bank of Nigeria (CBN) has revealed a notable reduction in loans extended to the private sector, with credit dropping to N71.21 trillion in March. 

This figure reflects a significant month-on-month decline of 11.93 percent or N9.65 trillion compared to February’s record of N80.86 trillion. Despite this decrease, credit to the private sector saw a substantial year-on-year increase of 65.57 percent from N43.01 trillion in March 2023.

In contrast, credit to the government also experienced a decline, dropping to N19.59 trillion in March from N33.93 trillion in February, representing a month-on-month decrease of 42 percent. However, on a year-on-year basis, credit to the government rose by 28.8 percent compared to N27.52 trillion recorded in March of the previous year.

These declines in credit to both the private sector and government are attributed to the CBN’s ongoing monetary tightening measures. The CBN has implemented ten consecutive interest rate hikes since May 2022 to curb inflation, with the Monetary Policy Rate (MPR) currently standing at 24.75%, up by 200 basis points from the previous rate of 22.75% set in February.

Furthermore, the CBN’s downward review of the loan-to-deposit ratio (LDR) from 65 percent to 50 percent in April is aligned with its monetary tightening stance. The LDR is a critical metric used to assess a bank’s liquidity by comparing its total loans to its total deposits. While increasing the LDR allows banks to extend more credit to businesses and individuals, a decrease in the ratio limits their ability to loan customers using depositors’ funds.

The Lagos Chamber of Commerce and Industry (LCCI) has voiced concerns over the adverse effects of high interest rates on the economy, particularly on the private sector. Dr. Chinyere Almona, the Director-General of LCCI, highlighted the impact of these rates on diverting funds away from business expansion and development, especially for Small and Medium Enterprises (SMEs). 

“The recent hikes in the MPR have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability.

“We have consistently advised that rate hikes alone will not curb inflation without resolving challenges of the real sector of the economy,” she said.

The CBN has been aggressively issuing Treasury bills since the first quarter, with interest rates ranging between 19% and 22%, nearly aligned with the Monetary Policy Rate (MPR) of 24.75%. This move was aimed at mopping up excess liquidity in the economy to curb inflation.

While recognizing the CBN’s efforts in controlling inflation and stabilizing the exchange rate, Dr. Almona emphasized the need to achieve these objectives without stifling private sector growth.

“The real sector has demonstrated the capacity to create more jobs, manufacture products for consumption and export, and sustain the industrial base of the economy.”

“While we understand that high-interest rates attract Foreign Portfolio Investments and local investors to treasury bills and bonds, we lament the drying up of funds away from the private sector to government treasuries,” she said.

I always quote him, and when Nigeria floated the Naira, I relied on his books which I read in secondary school to posit that it would destroy Nigeria’s economy. Magically, it turned out that everything I was saying, the great Economics teacher who wrote a really popular WAEC Economics teacher, was also saying.

“RENOWNED economist and author, Dr. O.A Lawal has told the Central Bank of Nigeria (CBN) to stop the Naira floating policy it introduced on the advice of the World Bank and the International Monetary Fund (IMF).

“Lawal, who spoke in an interview with the Nigerian Tribune said that the nation’s economy cannot withstand a floated Naira, adding that the World Bank and the IMF would destroy the Naira completely if care is not taken.

“He recommended the adoption of “managed currency” system adding that the country cannot afford to leave its currency at the mercy of certain forces, thereby expanding the frontiers of inflation and instability”, in July 31 2023, Tribune Newspaper 

In a piece on LinkedIn, a member of our community shared a link in the comment section. That link was an interview by Dr. OA Lawal. Dr. Lawal wrote a very popular O’level Economics textbook for secondary school education.

I did not do Economics in secondary school; I did Further Mathematics. Typically, because of the WAEC restrictions to a maximum of 9 subjects which I found strange, I had to find alternative ways to add some additional subjects I could not register for my senior secondary education. So, in SS1, I studied for those subjects and in my first term  in SS2, I took GCE (external WAEC). 

To prepare for those subjects, I bought some books under self-study. For the Economics subject, I used Dr. Lawal’s textbook. I passed with A2 (Distinction).  Reading his book influenced my basic understanding of economics, and he was a distant teacher. I did not attend Economics classes in school as Further Math was scheduled to clash with Economics in the timetable.

So, when Nigeria floated its currency, in a June 2023 article, I wrote that it was a bad policy. I quoted what Dr. Lawal wrote in his  textbook. Magically, yesterday, I just realized that he also spoke out: “CBN’s currency floating policy will kill the Naira —O. A. Lawal”, Tribune published on July 31, 2023. Indeed, floating the Naira without life jackets of production has sent Naira to uncontrollable seas!

That is from the teacher. If you read his book, you would have understood that most things the big experts were saying about Naira were nonsense. It is very refreshing that Dr Lawal found time in his retirement to share these insights.

The Tribune interview is on click; he posits the same thing I have recommended: managed or controlled exchange rate because the Naira does not have production-anchored economic resilience to be under the full influence of market forces.

I always quote him, and when Nigeria floated the Naira, I relied on his books which I read in secondary school to posit that it would destroy Nigeria’s economy. Magically, it turned out that everything I was saying, the great Economics teacher who wrote a really popular WAEC… pic.twitter.com/lMktvlIeeD

— Ndubuisi Ekekwe (@ndekekwe) May 5, 2024

Congratulations to the Tekedia Nation.  Our Tekedia Mini-MBA edition 13 co-learners have graduated, and they’re now #Ready2Lead the world of market systems. During the ceremony, I delivered a graduation message titled “It’s Time to Build” ; vide below.

To all graduates, thank you for choosing Tekedia Institute. Knowledge brings the liberation of the mind, and I am confident that we delivered as promised, through our program.

The certificates are now ready; follow the steps in the classboard for yours.  #Win the future. You are #ready2lead the world. Congratulations!