A recent report by the Central Bank of Nigeria (CBN) on the Depository Corporation Survey report for August, has revealed that credit to the economy has declined by N900 billion or 2.27 % in August, primarily due to contraction in credit to the government during the month.
This finding was disclosed by Vanguard, and it revealed that credit to the domestic economy (Net Domestic Credit, NDC) fell by 2.27% from N39.57 trillion in July to N38.67 trillion in August 2020.
On the reason for the decline, the report stated that it was due to N730 billion or a 10.21% decline in credit to the government, which fell to N8.55 trillion in August from N9.52 trillion in July. The contraction in credit to the government was driven by a sharp fall in government borrowing through treasury bills (TBs), as total TBs held by investors dropped by N510 billion or 14.7%, from N3.48 trillion in July to N2.97 trillion in August.
The report further showed that credit to the private sector remains unchanged at N30.13 trillion as at the end of August, slightly higher by 0.24% when compared with the N30.06 trillion in July.
What this means
The flow of credit is paramount to the growth and sustainable development of any nation. Therefore, the current credit crunch might be as a result of a shortage of funds, an extension of an impending recession, or perceived fear of bankruptcies or defaults due to the impact of the pandemic.
Recall that Nairametrics had earlier reported on how N3.3 trillion was injected into the Nigerian economy through loans by Nigerian banks.