Sanusi laments growing credit to govt


By Sunday Ojeme Thursday, 8 Jul 2010    


The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, has restated the need to unlock the credit market to benefit the private sector more than government borrowers. He said this was necessary in order to enhance credit flow to the real sector.


Sanusi, who disclosed this during the Monetary Policy Committee meeting in Abuja, said the substantial growth of credit to government (net) against the backdrop of declining private sector credit reflected the risk aversion of the deposit money banks to lending to non-government borrowers.


According to him, “The Committee believes that in order to provide the private sector with the necessary credit to grow the economy, further efforts are needed to unlock the credit market in order to enhance the flow of credit to the real economy”.


He said available data showed that in May 2010, aggregate domestic credit (net) grew by 12.38 per cent over the December 2009 level, and by 29.72 per cent when annualised, which was still below the 2010 indicative target of 55.54 per cent.


”Credit to government (net), which grew substantially by 50.87 per cent over end-December 2009 (or 122.1 per cent on annualised basis), was the major contributor. Credit to the private sector declined by 1.88 per cent (or 4.51 per cent on annualised basis), in contrast to the growth benchmark of 31.54 per cent for 2010,” he added.He noted that the key policy challenges remained the negative growth in money supply and private sector credit as well as the subsisting high lending rates in the face of declining inter-bank rates.


According to him, “Provisional data showed that relative to end-December 2009, broad money declined by 0.2 per cent in May 2010, which, when annualised represented a contraction of 0.48 per cent, compared with the indicative growth target of 29.26 per cent for 2010. Reserve money, which stood at N1.66bn at end-December 2009, declined to N1.51bn at end-April and N1.53bn at end-May 2010. As at June 23, 2010, the RM level of N1.61bn was below the provisional 2010 second quarter indicative benchmark of N1.87bn by 13.6 per cent.


“The rates at the inter-bank segments of the money market were much higher than what obtained in the preceding period owing to the short-lived tight liquidity conditions in May 2010. Consequently, in May 2010, the average inter-bank call and Open-Buy-Back rates rose significantly to 5.97 and 4.92 per cent, respectively, representing increases of 470 and 381 basis points above the 1.27 and 1.11 per cent recorded in the preceding month.


“In line with the increase in rates at the inter-bank call and OBB segments, the seven-and 30-day NIBOR rates increased by 397 and 311 basis points to 6.43 and 8.24 per cent, respectively, from 2.46 and 5.13 per cent in April.”He, however, said that with the release of statutory revenue in the last week of May, the banking system became liquid, adding that as a result, the average inter-bank call and OBB rates declined from 7.71 and 7.07 per cent, respectively on May 25, 2010 to 1.17 and 1.10 per cent on June 1, 2010.


He said, “Thereafter, rates remained stable and low, hovering around an average of 1.20 per cent. Developments in interest rates structure indicated that the retail lending rates were still relatively high even though they were declining.”





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