VANGUARD
Consumer loans booked by banks’ customers rose by 34 per cent, year-on-year, to N2.64 trillion in the first half of this year, H1’23, driven by increased demand from households compelled to depend more on borrowing to survive higher cost of living.
The pressure on households’ income is coming from persistent increases in prices of goods and services triggered by naira depreciation, food supply gap and other environment circumstances including insecurity.
The National Bureau of Statistics, NBS, last week reported the 10th consecutive month rise in inflation rate to 27.33 percent for October 2023 while food inflation was reported at 31.52 percent.
The growth in consumer loans was also enhanced by measures deployed by banks including digital innovations and capabilities, simplified processes and minimal documentation, improved product design and flexibility, as well as increased publicity and customer engagements.
Financial Vanguard findings from the latest data in the Central Bank of Nigeria, CBN, showed that the 34 per cent, YoY growth recorded in H1’23 represents the highest in four years, since 2019, when the apex bank introduced measures to increase loans to the economy including the Loan-To-Deposit Ratio, LDR, of 65 per cent.
According to the CBN Economic Report for the second quarter of the year, Q2’23, consumer loans rose to N2.64 trillion at the end of June, 2023, from N1.93 trillion at the end of June 2022. This represents N704 billion or 34 per cent year-on-year YoY growth during this period.
The growth represents a 31 percentage points higher than the 5.0 per cent, YoY growth recorded at the end of June 2022.
Furthermore, consumer loans recorded quarter-on-quarter growth, QoQ of 12.2 per cent from N2.35 trillion at the end of Q1’23.
“Consumer credit improved owing to increased demand for personal loans and strengthened enforcement of the Loan-to-Deposit Ratio (LDR) policy,” the CBN said.
On the LDR, the apex bank had stated in 2019: “All Deposit Money Banks (DMBs) are required to attain a minimum LDR of 65% by December 31, 2019 and this ratio shall be subject to quarterly review. To encourage SMEs, Retail, Mortgage and Consumer Lending, these sectors shall be assigned a weight of 150% in computing the LDR for this purpose.”
The increase in demand for personal loans according to analysts and bankers who spoke to Financial Vanguard is due to the higher cost of living caused by persistent rise in prices of goods and services as well as continued depreciation of the naira.
The NBS data also showed that over 65 per cent rise in inflation in October, was caused by increases in the prices of basic household needs namely, Food & Non-Alcoholic Beverages, Housing, Water, Electricity, Gas & Other Fuel. In addition to food shortages caused by insecurity and transport cost, a major factor behind the increases in prices of goods and services is the continued depreciation of the nation’s currency.
The depreciation of the naira was aggravated by reform measures introduced by the CBN on June 14th, 2023.
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