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Decline in Government Loans from Banks in Nigeria |
While the decline in credit to the public sector during February and March 2024 may seem insignificant, it reflects a seasonal trend. The government's reliance on auctions conducted by the Debt Management Office (DMO) contributes to this pattern
In March 2024, commercial lenders significantly reduced loans to the three tiers of the Nigerian government by 73.18%, bringing the total to N19.59 trillion, down from N33.93 trillion in the previous month. This information is based on data obtained from the Central Bank of Nigeria.
Notably, government credit had stood at N23.52 trillion in January.
Financial analysts attribute the government's renewed interest in the fixed-income market during March to the decline in credit extended to the public sector. Professor Olusegun Ajibola, former President of the Chartered Institute of Nigeria, explains that the government raised substantial funds through treasury bills and bonds, which reduced its reliance on loans from commercial lenders. Treasury bills, in particular, offer a cost-effective way for the government to raise funds compared to traditional bank borrowing.
Foreign investors also favor government securities, especially short-term bonds and Treasury bills. This alternative borrowing channel has implications for the overall credit landscape.
While the decline in credit to the public sector during February and March 2024 may seem insignificant, it reflects a seasonal trend. The government's reliance on auctions conducted by the Debt Management Office (DMO) contributes to this pattern.
In February, the Federal Government successfully raised N1.5 trillion through bond auctions. The DMO offered a N1.25 trillion 7-year FGN bond maturing in 2031 and another N1.25 trillion 10-year FGN bond maturing in 2034. The total bids received reached N1.9 trillion, making it the highest amount in any single FGN securities auction. The final allotment included N873.53 billion for the 2031 bond and N621.38 billion for the 2034 bond, totaling N1.495 trillion.
Despite these fluctuations, it's essential to consider the broader context. Public debt increased by 10.73% to reach N97.34 trillion in 2023. Additionally, banks adjusted their risk appetite, leading to a 11.94% decline in credit to the private sector in March compared to the prior month.
As Nigeria navigates its economic landscape, balancing government borrowing, risk management, and revenue collection remains critical. The decisions made today will shape the country's financial trajectory in the years to come.
