By Babajide Komolafe
*As   N350 bn public sector fund lifts interbank liquidity
Banking system credit to the economy rose by 10.6 per cent in August even as  inflow of N350 billion from the public sector lifted  interbank money market liquidity last week causing cost of funds to fall by 50 per cent.

Last week, the Federation Accounts Allocation Committee (FAAC) approved the release of N350.721 billion to the three tiers of government. This comprise statutory allocation fund of N235.121 billion, Excess crude oil fund of N51.192 billion, Exchange rate gain of N27.879 billion and Value Added Tax (VAT) fund of N36.53 billion.

The inflow of the funds improved market liquidity leading to sharp fall in cost of funds. Consequently interest rate on Overnight lending and Collateralised lending dropped to 4.25 per cent from 10 and 8.0 per cent respectively in the previous week.

Sanusi Governor of CBN

The Central Bank of Nigeria (CBN) last week released its economic report for August which indicated that banking credit to the domestic economy rose by 10.6 per cent during the month. The report stated, “Provisional data indicated increase in monetary aggregates at end-August 2009.

Broad money (M2) rose by 6.4 per cent to =N=9,455.0 billion, in contrast to the decline of 2.1 per cent in July 2009. Similarly, narrow money (M1) increased by 4.8 per cent to =N=4,509.2 billion, as against the decline of 4.0 per cent in the preceding month. The rise in M2 reflected wholly the increase of 10.6 per cent in banking system credit (net) to the domestic economy . Over the level at end-December 2008, M2 rose by 3.1 per cent.

Aggregate banking system’s credit (net) to the domestic economy rose by 10.6 per cent to =N=6,569.4 billion in August 2009, compared with the increase of 4.6 per cent in the preceding month. The development was attributed wholly to the 7.3 per cent increase in claims
on the private sector.

At =N=3,088.0 billion, banking system’s credit (net) to the Federal Government declined by 1.0 per cent, compared with the fall of 7.2 per cent in July 2009. The fall was attributed wholly to the decline in both deposit money banks’ (DMBs) holding of government securities and Federal Government deposits during the month.

Banking system’s credit to the private sector rose by 7.3 per cent to =N=9,688.6 billion, compared with the increase of 5.5 per cent in July 2009. This reflected largely the increase in DMBs’ claims on other private sector.

At =N=7,498.4 billion, foreign assets (net) of the banking system declined by 0.7 per cent, compared with the fall of 1.2 per cent in the preceding month. The development was attributed wholly to the fall in the CBN’s holding.

Quasi money rose by 7.9 per cent to =N=4,945.9 billion, in contrast to the decline of 0.2 per cent in July 2009. The development reflected the increase in all the components, namely, time, savings and foreign currency deposits of the DMBs.

Other assets (net) of the banking system fell by 0.2 per cent to =N=4,612.8 billion, compared with the decline of 8.5 per cent in the preceding month. The fall was attributed to the decline in unclassified assets of both the CBN and the DMBs.

At =N=1,019.4 billion, currency in circulation increased by 1.1 per cent in August 2009 over the level in the preceding month. The rise was due to the 7.1 per cent increase in currency vault cash.”