The Nigerian Private Sector has a High Borrowing Record of N33.8 Trillion
Nigeria’s credit to the private sector expanded to another record-breaking high of N33.8 trillion as of September 2021. This is based on information from the Central Bank’s cash and credit measurements.
The country’s private sector has seen a rise in borrowing as of late, because of a blend of central bank monetary policies, advancement in innovation and credit profiling; and a flood in FinTech organizations taking part in the loaning space.
‘Sometime in August, reports showed that credit to the private sector had ascended to a record-breaking high of N32.6 trillion, just for the economy to take on an extra N1.2 trillion in new net acquisition in three days. This year alone, the private area has recorded a net increment of N3.69 trillion in net borrowings. In the course of the last five years, credit to the private sectors have ascended by more than 100% developing from N18.7 trillion in December 2015 and almost multiplying to N32.6 trillion this year’. This is according to Nairametrics.
The last Monetary Policy Committee meeting of the Central Bank Of Nigeria, which was held in September, noticed and discussed the impact of the development in credit on invigorating the economy, empowering banks to keep on directing credit to the genuine sector. They said;
“The Committee noted the improvement in lending to the real sector following the introduction of the Loans-to-Deposit Ratio (LDR) in 2019. Industry gross credit increased by N6.63 trillion from N15.57 trillion at end-May, 2019 to N22.20 trillion at end-July, 2021. The credit growth was largely recorded in manufacturing, oil and gas and agriculture sectors,”.
In light of the danger of higher credit exposure, the summit bank has likewise encouraged commercial banks to take on risk moderation measures as they operate on more risky assets. The apex bank added;
“While the Committee was cognizant of the credit risks associated with lending in the current economic climate, it urged Nigerian banks to extend more credit to businesses and consumers to facilitate a seamless recovery of output growth, reduce unemployment and stabilize prices,”.
Why the private sector borrows?
Credit is vital for economic activity. While households borrow to smoothen consumption, purchase home utilities, pay bills, amongst other things, firms often require credit to finance new investments, and some to start up their businesses. Here are other reasons why private businesses borrow;
- Keep up with innovation
- Improve their credit rating
- Boost working capital
- Reinvest to bring in money
- Reduce personal risk
- Take advantage of supplier discounts, and
- Provide extra security.
The downsides to borrowing
A bank will not take ownership of your business when you borrow money as a private organization. Nonetheless, contingent upon how the agreement is drawn up, private organizations risk the bank dispossessing their businesses if they cannot reimburse the credit.
Most private sectors credits are secured, which implies that something is backing the credit. This may be a collateral or an insurance. Assuming the credit is gotten by insurance, the bank can guarantee some assets of yours or your business if you can’t reimburse the credit. In the most outrageous cases, the bank can assume control over your whole business.
Other downsides to borrowing may include;
- High interest rate, and
- Mismanagement of funds