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Banks credit to FG drops by 20.9%

By on June 16, 2014

Total credit from the banking sector to the Federal Government declined by 20.9 per cent, between March and April, figures obtained from the Central Bank of Nigeria have revealed.

The CBN bank in its economic report for April, which was made available to our correspondent on Friday, said the 20.9 per cent decline was in sharp contrast to the increase of 4.3 per cent and 12.6 per cent at the end of the preceding month and the corresponding period of 2013, respectively.

It said the development was due to the decline in the banking system holdings of government securities.

But the report did not give the details of the amount from the banks to the government during the period under review.

It also stated that as in the preceding month, the Federal Government remained a net lender to the banking, through the purchase of the FGN treasury bills.

It said at N15.28tn, the aggregate banking system credit to the domestic economy fell by 0.4 per cent, on month-on-month basis, in contrast to the growth of 1.2 per cent and 3.7 per cent at the end of the preceding month and the corresponding period of 2013, respectively.

The report said, “The development reflected, wholly, the 20.9 per cent decline in net claims on the Federal Government, which more than offset the effects of the 1.4 per cent increase in claims on private sector.

“Over the level at end-December 2013, aggregate banking system credit (net) to the domestic economy rose by 1.6 per cent, due wholly to the 3.1 per cent growth in credit to the private sector.

“Banking system’s credit (net) to the Federal Government, on month-on-month basis, fell by 20.9 per cent at end-April 2014, in contrast to the increase of 4.3 per cent and 12.6 per cent at the end of the preceding month and the corresponding period of 2013, respectively.”

The report said while the credit to the government recorded a decline, the banking system credit to the private sector grew by 1.4 per cent to N17.017tn, compared with the growth of 0.7 per cent at the end of the preceding month.

The development, according to the report, was due largely to the 1.5 per cent growth in claims on the core private sector.

On interest rates, the report said there were mixed developments in banks’ deposit and lending rates during the period.

For instance, it said with the exception of the average savings, seven-day and 12-month deposit rates, which rose by 0.04, 0.01 and 0.39 percentage point to 3.42, 4.89 and 9.69 per cent in April 2014, all other deposit rates of various maturities declined from a range of 8.30 – 10.28 per cent in the preceding month to a range of 8.19 – 10.07 per cent.

At 8.59 per cent, the CBN report said the average term deposit rate fell by 0.14 percentage point below the level in the preceding month.

Similarly, it said the average maximum lending rate fell by 0.17 percentage point to 25.63 per cent, noting however that the average prime lending rate rose by 0.01 percentage point to 16.70 per cent.

The spread between the weighted average term deposit and the maximum lending rates widened by 0.12 per cent to 17.19 per cent.

Similarly, the margin between the average savings deposit and the maximum lending rates widened by 0.05 percentage points to 22.47 per cent at the end of the review month.

The Governor of the CBN, Mr. Godwin Emefiele, had while unveiling his agenda for the banking sector said his administration would pursue a gradual reduction in interest rates.

He said while a reduction in deposit rates would encourage investment attitudes in savers, a reduction in lending rates would make credit cheaper for potential investors.