Between January and June 2024, various economic sectors in Nigeria collectively repaid N3.31 trillion to commercial banks as part of their efforts to manage outstanding loans. This substantial reduction in debt was part of a broader strategy to decrease total credit obligations from N30.75 trillion to N27.44 trillion amid rising costs of debt servicing. The report, based on the latest statistics from the Central Bank of Nigeria (CBN), highlighted key sectors involved in this repayment process: manufacturing, trade, power, mining, and others, including oil and gas, information and communication, and construction. The overall credit reduction points to the acute financial pressures faced within these sectors, signaling caution in light of unfavorable economic conditions.
The increase in debt repayment is strongly correlated with recent trends in the CBN’s monetary policy. The CBN raised the benchmark interest rate multiple times, including a 50 basis-point increase to 27.25 percent at its latest Monetary Policy Committee (MPC) meeting, marking the fifth hike of the year. This decision reflects the bank’s commitment to curbing inflation and managing financial stability. Since the appointment of Olayemi Cardoso in September 2023, the benchmark interest rate has climbed a total of 850 basis points, prompting analysts and industry stakeholders to express concerns about the rising burden of financing costs on critical sectors of the economy.
Despite the overall debt repayment trend, eight banks reported a significant increase in net interest income, growing by 163.19 percent to reach N4.79 trillion in the first half of 2024 compared to N1.82 trillion in the same period last year. The financial performance of these banks raises questions about the broader implications of rising interest rates—while banks may benefit from increased income, the heightened costs of borrowing could lead to a worsening of bad loans among various Deposit Money Banks. Analysts emphasize the need for a balanced approach to monetary policy that fosters economic growth while ensuring financial health within the banking sector.
Within the sectors that made significant loan repayments, the trade and commerce sector led, with N1.05 trillion cleared in debts. Following closely was the information and communication sector, which repaid N830.28 billion, and the manufacturing sector, which contributed N760.12 billion towards reducing its loans. Additional repayments were made by the oil and gas sector at N380.94 billion and transportation and storage at N38.39 billion. Although these sectors are reducing their overall borrowing, mining and quarrying reported the smallest repayment, only managing N833 million. Notably, this trend indicates a shift where sectors dealing in consumer goods and services are responding to financial pressures by streamlining their debt loads.
Conversely, some sectors showed an increase in borrowing despite the prevailing economic environment. The agricultural sector, for example, raised its loans by N24.56 billion, moving from N2.42 trillion in January to N2.44 trillion by June. The real estate industry also expanded its loan portfolio, increasing by N38.05 billion to reach N1.01 trillion. Financial firms experienced a notable rise in their borrowing, with loans going up by N492.23 billion, while educational institutions secured an additional N13.76 billion, demonstrating healthy growth from N103.02 billion to N116.78 billion. This increase in borrowing could signal ongoing investment and development in these sectors, even as larger sectors reduce their debts.
Overall, the landscape of credit in Nigeria reflects a complex interplay of rising interest rates, sector-specific financial pressures, and varying strategies toward debt management. While major sectors have opted to prioritize repayment amid cautioned optimism about economic conditions, others are focusing on growth and development through increased borrowing. The CBN’s tight monetary policy, aimed at stabilizing the economy amidst inflationary pressures, continues to shape the borrowing behaviors of both high-volume and emerging sectors. The contrasting trends highlight the diverse conditions experienced in the economic landscape, illustrating a nuanced approach among various sectors toward navigating financial challenges and opportunities. Ultimately, this dynamic is crucial for assessing the resilience of Nigeria’s banking sector and its capacity to support sustainable economic growth in the face of evolving challenges.
