The economic challenges facing Nigeria have led to a surge in borrowing, with approximately N290 billion borrowed from banks in just three months. This revelation comes from the Central Bank of Nigeria’s (CBN) Economic Report for the Second Quarter of 2023. In contrast to the first quarter of the same year, consumer credit, encompassing personal and retail loans, saw a notable increase of 12.2%, rising from N2.35 trillion to N2.64 trillion between April and June 2023.
Breaking down the consumer credit figures as of June 2023, personal loans accounted for a significant N1.92 trillion (72.9%), while retail loans made up N715.10 billion (27.1%). The report attributes this surge in consumer credit to heightened demand for personal loans and the reinforced implementation of the Loan-to-Deposit Ratio (LDR) policy.
According to the CBN report: “Consumer credit improved owing to increased demand for personal loans and strengthened enforcement of the Loan-to-Deposit Ratio (LDR) policy. Consequently, total consumer credit increased significantly by 12.2%, to ₦2,637.31 billion in the second quarter of 2023, compared with ₦2,349.88 billion at the end of the preceding quarter.”

However, despite the increase in consumer credit, its share of total credit by Other Depository Corporations (ODCs) declined to 7.0%, which is below the 7.7% and 7.8% recorded in the preceding quarter and the corresponding period of 2022, respectively.
Nigeria is grappling with rising inflation, with forecasts indicating a potential 30% inflation rate by December 2023. This surge in inflation has placed a heavy burden on Nigerians, affecting the cost of essentials such as food, fuel, and rent. The World Bank reported that inflation had already pushed an estimated four million more Nigerians into poverty in the first five months of the year, adding to the existing 133 million Nigerians classified as multidimensionally poor. The persistent inflationary pressures raise concerns that more Nigerians may fall into poverty, prompting an increase in borrowing to meet basic needs.
A report by SBM Intelligence highlighted that 27% of Nigerians across various income categories are turning to loan apps to sustain their living expenses amidst the inflationary challenges. In response to these economic conditions, the CBN announced in July 2023 that it would resume the enforcement of the LDR policy, effective July 31, 2023.
The LDR policy, initiated with a directive on January 7, 2020, mandated banks to maintain their LDR at a minimum of 65%. The ratio is a key metric used to evaluate a bank’s liquidity, calculated by dividing total loans by total deposits. The central bank’s move to resume enforcement was communicated through a letter signed by Abu Shebe on behalf of the CBN Director, Banking Supervision, emphasizing the policy’s objective to reduce industry surplus liquidity and stimulate credit distribution.
The CBN had initially required banks to maintain a minimum loan-to-funding ratio (LDR) of 60.0% on July 3, 2019. This requirement was later raised to 65.0% on September 30, 2019, with the intention of encouraging banks to increase consumer, mortgage, and corporate credits. The overarching goal was to stimulate aggregate demand, output growth, and employment while promoting credit distribution to the real sector of the economy.
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