Commercial banks in Nigeria drastically reduced loans to the government by 73.18% in March 2024, marking a substantial drop from N33.93 trillion in the previous month to N19.59 trillion, according to data released by the Central Bank of Nigeria.
The decrease in credit to the public sector was primarily attributed to the government’s increased participation in the fixed-income market during March. Analysts observed a surge in government funds mobilization through treasury bills and bonds issuance, significantly reducing reliance on bank loans.
Professor Olusegun Ajibola, former President of the Chartered Institute of Nigeria and a renowned economist, highlighted the government’s preference for raising funds through treasury bills due to lower costs compared to bank borrowing. Additionally, investor interest in government securities, particularly among foreign investors, contributed to the decline in bank loans.
Financial analyst Rotimi Fakayejo linked the decline in credit to the redemption of some government securities during the period. Moreover, banks adjusted their lending practices in response to directives from the Central Bank of Nigeria, contributing to reduced lending to the public sector.
Economist and investment specialist Dr. Vincent Nwani suggested that the decline in credit may be seasonal, cautioning against overinterpreting the one-month decline. He emphasized the need to consider broader trends in credit to the government over several months.
Despite the significant decrease in government loans, the Debt Management Office (DMO) reported robust participation in the bond market, with the Federal Government raising N1.5 trillion in bonds during its February auction.
Furthermore, data analysis revealed a decline in net domestic credit and reduced lending to the private sector. Meanwhile, revenue received by the three tiers of government from the Federation Account Allocation Committee dropped slightly to N1.12 trillion in March.
Key players in the banking sector, including Zenith Bank, United Bank for Africa Plc, and Guaranty Trust Holding Company Plc, exhibited varying degrees of reluctance in extending credit to the public sector, with differing percentages of their total loans allocated to government borrowing.
The trend underscores evolving dynamics in Nigeria’s financial landscape, reflecting both government strategies for fund mobilization and banks’ risk management practices.
