Consumer Loans From Banks Fall By 17% As The CBN Limits The Money Supply

Interest rates are rising.

Customers are now refusing loans 

Banks lowered consumer loans by 17% (N400 billion) in one month for the first time in three years, after a fall in money supply caused by the Central Bank of Nigeria’s (CBN) inflation-fighting policies.

Banks make consumer loans to one or more persons for home, family, or other personal expenses.

Consumer loans have been increasing in Nigeria since September 2019, when the Central Bank of Nigeria (CBN) implemented the minimum loan-to-deposit ratio (LDR) regulation, which requires banks to lend out at least 65 percent of their total deposits. As a result, consumer loans increased gradually by 93% from N1.21 trillion at the end of June 2019 to N2.33 trillion in May 2022.

However, findings from CBN statistics show that during the product’s third year anniversary in June 2022, the volume fell by 17% month on month, to N1.93 trillion from N2.33 trillion in May 2022.

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According to the report, banks reduced personal loans to consumers by 19% month on month, to N1.45 trillion from N1.79 trillion in May. Banks also reduced retail loans by 13% year on year, to N483 billion from N554.8 billion.

As a result of this scenario, consumer loans had their first quarterly drop in 2022. Consumer loans declined 15.2 percent quarter on quarter, QoQ, to N1.93 trillion in Q2’22, from N2.28 trillion in the first quarter of the year, Q1’22.

Following suit, the share of consumer credit in total private sector credit fell by 2.1 percentage points to 7.2 percent in Q1’22, down from 9.4 percent in Q1’22.

The fall in consumer loans in June was precipitated by the CBN’s Monetary Policy Committee’s (MPC) decision on May 24th 2022 to restrict money supply in order to contain the sustained rise in the prices of goods and services, which generated a persistent rise in the inflation rate.

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As a result, on May 24th, the MPC hiked the Monetary Policy Rate, MPR, which is the benchmark for interest rates in the country, by 150 basis points to 13% from 11%.

Since then, the CBN has raised the MPR by 250 basis points to 15.5%, while tightening money supply by increasing the Cash Reserve Ratio, CRR, of banks to 32.5 percent from 27.5 percent, in response to the continuous rise in inflation, which reached 20.77 percent in September.

Interest rates are rising.

As a result, banks boosted lending rates, and the average prime lending rate increased by 370 basis points to 12.23% in September, up from 11.96% in May. Similarly, the average maximum loan rate increased by 270 basis points in September to 28.06 percent, up from 27.79 percent in May.

Confirming this situation, a top management staff member of a Tier-1 bank, who requested anonymity, informed Financial Vanguard that his bank’s interest rate on consumer loans was raised from 18% prior to the MPR hike to 20% after the hike. He noted that the bank had planned to raise interest rates to 22%, but the decision was postponed until a later date.

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However, according to Financial Vanguard money market statistics, several banks have upped their lending rates for prime lending to between 21 and 23 percent, while other categories of lending are as high as 28 percent.

According to another Tier-1 bank branch manager, the hike in interest rates has impacted consumer credit demand. On the condition of anonymity, she stated that some clients simply refused to take out new loans after repaying their existing ones because the interest rate was too high.

She went on to say that another cause is that banks have either ceased authorizing consumer loans or hiked interest rates for consumers in certain sectors of the economy or enterprises that are no longer as lively as they once were.

She stated that her bank, for example, has ceased providing loans to employees of a mobile telecommunications business due to the company’s financial difficulties.