Commercial loans to government hit N13.7 trillion in five years

•Net domestic credit increased by 276 per cent
Commercial credit to Nigeria’s public sector rose from a moderate N4.88 trillion to N13.73 trillion in five years (from December 2016 to the end last year), raising concern about the increasing exposure of banks to the government.

The leap – 181.7 per cent – also highlights the extent to which the public sector, which is largely considered inefficient and unproductive, is crowding out the private sector.

The figures are contained in the Central Bank of Nigeria (CBN) credit statistics.

The data point to significant growth in commercial credit to the government, at different levels, in recent years.

While the public sector credit grew almost threefold in the period, that of the private sector expanded by 62.5 per cent. The total credit to the private sector closed last year at N35.73 trillion. The private sector credit on the balance sheets of the banks was N21.98 trillion as at December 31, 2016.

Notwithstanding the speed of growth of loans to the government, the private sector credit portfolio is still much larger. The chunk of credit to the private sector still exceeded 70 per cent of the net domestic credit at the close of last year.

Data have also shown that commercial banks recorded an aggressive growth in public sector loan underwriting in recent years.

Even years when the private sector credit recorded a negative or extremely-low growth, that of the public sector was on the uptrend. In 2019, for instance, the latter soared by 95 per cent against the moderate rise of 17.5 per cent in banks’ facilities to the private sector.

Analysis of another data set showed an uptrend in net domestic credit. The figure has witnessed phenomenal growth in the past few years with the past decade seeing a nominal rise of 276 per cent – from N13.15 trillion to N49.46 trillion between 2011 and 2012.

Unlike other growth indices, the net domestic credit has also been fairly consistent. The first half of the decade analysed recorded a growth of 104.2 per cent while the second posted over 84 per cent.

Increasing exposure of banks to the public sector has caused a stir in recent times with some experts calling for restraint to make the needed fund available to growth sectors.

The public sector’s over-reliance on the domestic market for funding could crowd out the private sector – a situation where government’s involvement makes credit unavailable or unaffordable for private sector players.

The Fiscal Responsibility Commission (FRC) had recently warned the banks against reckless lending to state governments, saying they exposed themselves to default risk.

Chairman of the Commission, Victor Muruako, said states undermined extant rules contained in the FRC Act when borrowing from commercial banks.