Further Slowdown in PSCE Growth in November 2020


Thursday, December 31, 2020 / 08:57 AM / by FBNQuest Research / Header Image Credit: Guardian Nigeria

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Net domestic credit to the private sector increased by 11.1% y/y to NGN29.34trn at end-November according to the CBN. Its rate of growth remains double-digit yet has slowed for four successive months. The data cover lending by the entire banking system and not merely the deposit money banks (DMBs), which represent around 65% of the total figure.


The balance consists of loans from the Bank of Industry and other state-owned development banks, not forgetting the CBN itself in its expanding developmental role. Our own take on the slowing rate of growth in private-sector credit extension (PSCE) is that DMBs have increasingly complied with the minimum 65% threshold for the loan-to-deposit ratio set by their regulator (the CBN).


This y/y growth is close to nominal GDP growth. Nigeria's gross total credit/GDP ratio of about 20% is one of the weaker points in the credit story. It helps to explain, inter alia, subpar GDP growth over many years, the bluntness of monetary policy and weak non-oil tax collection. Growth peaked at 6.3% in the first half of the last decade but did not approach the rate of 8%+ required to transform job creation and living standards.


The communique of the monetary policy committee (MPC) after its last meeting put gross credit from the banking industry, which we take to be the DMBs, at NGN19.54trn on 13 November, compared with NGN19.33trn at end-August and NGN15.56trn at the start of the CBN's tighter loan-to-deposit policy in May 2019. This slowdown in lending expansion by the DMBs seems to bear out our explanation of increased compliance with the policy.


The MPC also noted that the main beneficiaries of the NGN3.98trn increase since May 2019 were general commerce (NGN870bn), manufacturing (NGN740bn), and agriculture and forestry (NGN300bn).


We hear much about the 'crowding out' of the private sector. We see from the CBN's broader money and credit statistics that credit to government (from all lenders and not only the DMBs) represented 26.9% of total credit to all parties in November 2020, compared with 25.6% one year earlier and 11.4% in November 2018. 


We would expect Nigerians to step up their withdrawals of cash because of Covid, and are not surprised that currency outside banks increased by 25.4% y/y in November to NGN2.26trn.


The difference between the M2 and M3 measures of money supply consists mostly of CBN bills with money holding sectors. It has narrowed sharply this year although since end-November the CBN has announced the issuance of new special bills. 


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

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Source: CBN; FBNQuest Capital Research

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