- The Central Bank of Nigeria said the net domestic credit declined to N99.41 trillion in January 2025
- The amount dropped from N115.58 trillion recorded in November 2024
- Likely factors responsible for the decline include the CBN’s tight monetary stance, reduced government borrowing, and private sector caution
The Central Bank of Nigeria (CBN) says Nigeria’s net domestic credit declined to N99.41 trillion in January 2025 from the N115.58 trillion recorded in November 2024.
According to the latest Money and Credit Statistics report by the CBN, the net domestic credit in January 2024 stood at N99.99 trillion, while it was N85.35 trillion in November 2023.
The net domestic credit trend showed fluctuations in domestic lending over the last one year, which could be due to tightening monetary policies by the apex bank or reduced borrowing demand across sectors.
The CBN did not however provide figures for December 2024, leaving a crucial gap in understanding credit movement during the peak holiday spending period.
A decline in net domestic credit could be an indication of reduced liquidity in the economy, which could affect investment, business expansion, and consumer spending.
Net domestic credit is the total amount of credit that the financial sector provides to the economy. It includes credit to the private sector, the non-financial public sector, and other accounts.
Likely factors responsible for decline of net domestic credit
Although the CBN report did not explicitly give reasons for the decline in net domestic credit, several factors can be adduced for this.
These factors include the CBN’s tight monetary stance throughout 2024 to tackle inflation pressures and stabilise the naira.
Recall that as of November 2024, the CBN had increased the Monetary Policy Rate (MPR) six consecutive times, from 18.75 per cent in January 2024 to 27.50 per cent in November 2024, intending to curb inflation.
However, the inflation rate continued to soar throughout 2024. It reached 34.80 per cent in December from 34.60 in November 2024, having surpassed a 28-year high four times in 2024.
The inflation rate dropped to 24.48 per cent in January 2025 following the rebasing of the Consumer Price Index (CPI).
The apex bank maintained that if not for its policy interventions, inflation in Nigeria could have surged to 42.81 per cent by December 2024.
Reduced government borrowing, private sector caution, are other factors
Other reasons that could be adduced for the reduction in net domestic credit are the decline in government borrowing and the cautious stance of the private sector.
The Federal Government’s fiscal stance and debt management strategies have seen considerable lower government borrowing, resulting in lower credit allocations.
Also, private sector businesses and individuals could be adopting a more cautious and conservative approach to borrowing amid economic uncertainty, and may have influenced the decline in net domestic credit.
Expert wants CBN to relax CRR to encourage domestic lending
Recall that at the end of its 299th Monetary Policy Committee (MPC) meeting on February 19 and 20, the CBN retained the interest rate at 27.50 per cent.
It also maintained the Cash Reserve Ratio (CRR) at 50.00 per cent for Deposit Money Banks and 16 per cent for Merchant Banks, and an asymmetric corridor of +500/-100 basis points around the MPR.
This, according to Dr Muda Yusuf, the Chief Executive Officer (CEO) of the Centre for Promotion of Private Enterprises (CPPE), has no justification and poses a challenge of expensive credit.
Yusuf called on the CBN to also relax the CRR and the asymmetric corridor around the MPR to further ease the cost of borrowing.
“The impact is that it will bring some relief to businesses, especially those that are already indebted to banks. At least, interest rates are not increasing further.
“Those who are already indebted are the worst hit because they cannot walk away from the loan. Fresh borrowers can choose whether or not to take a loan, but existing debtors are stuck. We hope that at the next MPC meeting, there will be some relaxation of these rates.
"We want to see a drop in the MPR and the Cash Reserve Ratio (CRR),” he said.
Consumer credit rises to N4.42 trillion in November 2024 due to inflation expectations
Meanwhile, TheRadar earlier reported that consumer credit rose to N4.42 trillion in November 2024, a 26.29 per cent increase from the N3.5 trillion recorded in October 2024.
This is according to the latest Monthly Economic Report of the Central Bank of Nigeria (CBN), noting that the increase was largely driven by inflation expectations, which pushed individuals to seek more credit to meet their financial needs.
