Between February and June 2024, Nigerian manufacturing companies lowered their debt load by N1.62 trillion.
The Central Bank of Nigeria’s (CBN) statistical bulletin on the sectoral distribution of credit by Deposit Money Banks provides the data for this.
This decrease, which amounts to a 14.85% dip in industrial loans, coincides with rising interest rates that have made borrowing more expensive overall.
What The Data Indicates
The overall amount of credit given to the manufacturing sector in February 2024 was N10.88 trillion, up N860 billion from the N10.02 trillion reported in January of the same year.
This sum dropped to N9.26 trillion by June 2024. The sector’s inability to control rising finance expenses after the CBN’s rate hikes is seen in the N1.62 trillion decline between February and June, highlighting the effect of monetary tightening on corporate operations.
In February 2024, Olayemi Cardoso, the current governor of the CBN, announced the first interest rate increase, establishing the framework for strict monetary policies aimed at reducing inflation.
Manufacturers Account For 16.63% Of All Bank Lending To The Private Sector
During the same time period, there was also a significant decline in the total amount of credit extended to the private sector across all industries.
Private sector loans totalled N61.56 trillion in February 2024, but by June 2024, they had dropped by N5.84 trillion to N55.71 trillion.
Since the cumulative effects of rate rises limited loan accessibility, this suggests broader financial tightening, not only in the manufacturing sector but across other businesses.
Manufacturing loans accounted for N10.88 trillion out of N61.56 trillion in February, or 17.68% of all private sector credit.
By June, though, this percentage had somewhat dropped to 16.63% (N9.26 trillion out of N55.71 trillion).
The figures demonstrate how, in the face of more difficult borrowing conditions, manufacturing companies—albeit still major borrowers—have reduced their operations.
The borrowing environment has changed dramatically since the CBN raised interest rates in February 2024 in an effort to control inflation.
Many companies have chosen to repay loans rather than face increased interest costs as they try to stay afloat.
The pattern also suggests that businesses have a cautious attitude and would rather limit their exposure to unstable lending circumstances in the months after the hike.
What To Note
In order to fight inflation and promote economic stability, the CBN raised the monetary policy rate (MPR) five times under Olayemi Cardoso.
The rate was raised from 18.75% to 22.75% in the first rise, 24.75% in the second, 26.25% in the third, 26.75% in the fourth, and most recently, by 50 basis points to 27.25% in September 2024, by the Monetary Policy Committee (MPC).
The country’s ongoing inflation problems, such as high core and food inflation, have prompted these hikes, which have totalled 850 basis points since Cardoso took office.
The dynamics of credit allocation in Nigeria have changed as a result of the CBN’s tightening monetary policy.
Because higher yields provide better returns with comparatively lower risk than private-sector lending, rising interest rates have increased investor interest in government assets. Government borrowing has increased as a result, while businesses are becoming more cautious due to rising borrowing prices.
Long-term tight monetary policy, however, raises worries that it may hinder economic growth, particularly if companies are unable to obtain reasonably priced credit to fund investment and expansion.
In order to lessen the impact of the high monetary policy rate in the nation, Dr. Muda Yusuf, Director-General of the Centre for the Promotion of Public Enterprise (CPPE), recently urged the CBN to accelerate the window of development finance for enterprises. He pointed out that the Nigerian economy depends on firms paying single-digit interest rates.
Alhaji Aliko Dangote, the president of Dangote Group Industries Ltd., added that unless the bank’s 30% interest rate drops, there won’t be any economic expansion. He also urged the nation’s native sectors, particularly those in manufacturing, to be protected.
The CBN’s governor, Yemi Cardoso, had previously underlined the need to keep interest rates higher in order to combat the ongoing inflation problems ailing the Nigerian economy. Cardoso said they might address the problems of rising inflation by implementing stricter monetary policy and raising interest rates.
