Continuing Double-Digit Growth in PSCE in January 2021


Wednesday, March 03, 2021  / 10:02 AM / by FBNQuest Research / Header Image Credit: FBNQuest

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Net domestic credit to the private sector rose by 15.0% to NGN30.56trn (USD77.5bn) at end-January according to the CBN's broad definition. This decent rate of growth reflects both the CBN's higher loans-to-deposit ratio of 65% since December 2019 for deposit money banks (DMBs) and the steady expansion of its own development finance activities.


We learn from the latest communique of the monetary policy committee (MPC) from late January that the CBN had disbursed NGN2.0trn within its many credit interventions in response to the Covid-19 virus. MPC members, several of whom are senior CBN staff, are robust supporters of the developmental role and have called for even faster disbursements.


This broad definition of private-sector credit extension (PSCE) from all lender categories compares with the figure of NGN19.36trn for total lending by the DMBs at end-September. The difference of c. NGN11trn is accounted for in good measure by the CBN's many credits, both pre-COVID and COVID-fuelled.


Additionally, loans and advances by four state development banks including the recently recapitalized Bank of Industry amounted to NGN900bn at end-September.


A tier-one DMB last week guided to loan book expansion of 10% this year, having achieved close to 20% in 2020.


Amid the uncertainties under the shadow of the virus, Nigerians have naturally sought greater access to their cash. Currency outside banks increased by 27.0% y/y to NGN2.30trn in January.


PSCE has now increased at double-digit levels y/y since August 2019. This growth, together with the recession last year, will improve Nigeria's PSCE/GDP ratio, which stood at a derisory 18.5% at end-2019. Underbanked and with a sizeable informal economy, Nigeria lags its peer economies such as South Africa, which boasted a ratio of 76.3% in 2019.


The difference between the M2 and M3 measures of money supply consist largely of CBN bills with money holding sectors. It picked up to NGN1.59trn in January. The CBN indicated at a conference yesterday that it plans to phase out the issuance of its OMO bills over time in favour of the NTBs it routinely sells at auction: this would likely enhance transparency as well have implications for the naira exchange rate, the balance of payments and the reserves. 


Money and credit indicators (% chg; y/y)

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Sources: CBN; FBNQuest Capital Research

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