The country’s economic difficulties have resulted in a heightened debt burden for numerous Nigerians, as indicated by the borrowing of around N290 billion from banks over a three-month span.
The Central Bank of Nigeria (CBN) has revealed in its latest Economic Report for the Second Quarter of 2023.
Consumer credit, which includes personal and retail loans, increased by 12.2% from N2.35 trillion in the first quarter of 2023 to N2.64 trillion by Q2 of the same year as contained in the report
This translates to a substantial increase of N290 billion between April and June.
Breaking down the total consumer credit of N2.64 trillion as of June 2023, personal loans constitute N1.92 trillion (72.9%), while retail loans make up N715.10 billion (27.1%). The report attributes this growth in consumer credit to heightened demand for personal loans and a reinforced implementation of the Loan-to-Deposit Ratio (LDR) policy.
The CBN underscores that consumer credit’s share of total credit by Other Depository Corporations (ODCs) declined to 7.0%, compared to 7.7% and 7.8% in the preceding quarter and the corresponding period of 2022, respectively.
As the apex bank links the rise in consumer credit to increased demand for personal loans and the strengthened enforcement of the LDR policy, the economic landscape is further complicated by a rising inflation rate, potentially reaching 30% by December 2023. This inflationary trend has significantly impacted the cost of living for Nigerians, leading to an estimated four million more individuals falling into poverty in the first five months of the year, according to the World Bank.
In response to these economic challenges, a significant portion of Nigerians, across various income brackets, is turning to loan apps to cope with rising living expenses, as reported by SBM Intelligence. Against this backdrop, the CBN announced in July its decision to resume the enforcement of the LDR policy, effective July 31, 2023.
The LDR policy, introduced in 2019, mandates banks to maintain a minimum loan-to-funding ratio to encourage increased lending to the consumer, mortgage, and corporate sectors. This initiative aims to stimulate aggregate demand, output growth, and employment while mitigating industry surplus liquidity. The central bank’s communication to the banks emphasized the policy’s purpose and its alignment with efforts to reduce excess liquidity in the industry.
