Fatshimetrie: Bank Deposits Soar
A Look at the Interest Rate Cut
By Lisa Dubois
Bank credit to the private sector has increased significantly, registering a whopping 33.6% year-on-year increase to N75.5 trillion in July 2024, from N56.5 trillion in the same period of 2023. This is indicative of a bright future for economic recovery.
Private Sector Credit (PSC) comprises loans, trade credits and other receivables provided by banks to private sector actors over a given period. PSC is a global measure of the resilience of the banking sector’s balance sheet and its contribution to national economic activities.
David Adonri, Financial Analyst and Executive Vice Chairman, High Cap Securities Limited, commented on the development, saying: “This is a good sign for the economy. The question now is interest rates; the Central Bank of Nigeria (CBN) has a crucial role to play.
“Increased credit to the private sector implies a major boost to the economy because there is a direct link between credit to the private sector and economic growth. Increased lending by banks directly leads to an increase in the Gross Domestic Product (GDP).
“The trend in credit to the private sector could be sustained if the benchmark interest rate, the Policy Interest Rate (MIR), is lowered. So, I would like the central bank to reduce the MIR now that inflation is subsiding.”
Furthermore, the distribution of banks’ credits showed that in the second quarter of 2024, credits increased by 2.8% to N73.2 trillion, compared to N71.2 trillion in the first quarter of the same year.
The CBN Money and Credit Report also revealed a significant increase in bank deposits in the first half of this year. The report indicated that demand deposits of banks increased from N26.7 trillion at the end of December 2023 to N33.0 trillion as of June 2024.
Banks have recorded steady growth in their deposits since the beginning of the year. Total demand deposits in the first quarter ending March 2024 increased by 8.1 per cent to N28.9 trillion. In the second quarter ending June 2024, deposits of banks increased by 14.3 per cent to N33 trillion.
At the same time, almost all banks have recorded significant increases in their deposits in recent times, providing most of them with room to extend fresh loans and advances.
The surge in bank deposits and credit to the private sector should support economic growth and foster the post-pandemic recovery, provided that appropriate measures, such as lower interest rates, are put in place to further stimulate financing and investment. Financial authorities should remain attentive to these trends and adopt appropriate policies to consolidate these gains and foster an economic climate conducive to long-term prosperity.