Monday, March 05, 2018/ 08.50
AM / FBNQuest Research
chart today shows the trend in net domestic credit extension on a q/q basis
over the past two years. These are the claims of the monetary system (the CBN
and the banks combined) on both the FGN and the private sector, which includes
the state governments.
the chart we can see the modest growth of lending to the private sector,
together with the swings in claims on the FGN. The broader trend in money and
credit aggregates has been a sharp increase in the net foreign assets of the
system since Q2 2017, reflecting investor confidence in the economy.
The share of
claims on the FGN and the private sector in total claims stands at about 20/80.
The growth in
claims on the private sector has been modest because the banks have instead
bought NTBs on a large scale. Rates on the 364-day paper were over 22% as
recently as late August, when prime and maximum lending rates to the real
economy were 18% and 31% respectively according to the CBN. The choice of FGN
paper has been a “no brainer”.
Now that the
rates on the 364-day paper are more than 600bps lower at auction, banks (and
PFAs too) may wish to change their investment thinking.
For the banks, a core question is whether
they can identify new lending targets where they are comfortable with the risk
(and for which they have the necessary credit skills).
They like to join club deals where the risk
is shared with their competitors. These deals can also go wrong but in our view
their popularity with the banks reveals a “safety first” mindset.
We do, however, see some pick-up in real
economy bank lending, perhaps low single-digit growth annualised, because the
banks will be looking to replicate the high returns on NTBs they enjoyed most
of last year.
- Banking Credit to the Private Sector: The Face Behind the Mirror
- Banking Sector Records 213.69m Volume of Transactions in Q3 2017 -
- Banking Sector Records 327.37m Volume of Transactions in Q2 2017 -
Reports On Credit Rating Agencies, Recommends Changes
Improvement in Credit Extension Ahead
Approach to Credit Extension
- CBN Moves
to Open More Opportunities with Collateral Registry
Collateral Registry: 20,684 Movable Assets Valued at N392bn on the NCR
Growth in Private Sector Lending