Loan Book Expansion in Double Digits


Monday, February 17, 2020 / 09:12 AM / FBNQuest Research / Header Image Credit: FBNQuest


From the CBN's latest data, we note the continuing pick-up in banks' net credit to the private sector, which has expanded y/y at double-digit levels for four successive months. The growth in November was roughly that for nominal GDP, and the authorities will be looking for further acceleration (and a meaningful rise in financial intermediation). The monetary policy committee (MPC) has stated its "delight" at the trend, for which the CBN's tightening of banks' minimum loan-to-deposit ratio (LDR), to 65% as at end-December, has been a leading driver.


The MPC's communique last month noted an increase of about N2trn in aggregate credit over the six months to December. (The definition is similar, but not identical to that we cite above). The main beneficiaries were manufacturing (N450bn), and general retail and consumer loans (N420bn).


There is fighting talk from some banks adamant that they will improve their LDR without compromising the quality of their loan books. By falling short of the minimum threshold, they are penalized by the CBN with deductions to bolster their cash reserve ratio.


The communique also observed that the NPL ratio for the banks had fallen from 6.6% at end-October to 6.1% two months later. The CBN's prudential benchmark remains 5.0%. Some analysts in the industry insist that the ratio will deteriorate again due to the rise in the minimum LDR. Another argument is that the banks should be able to adjust their credit skills.


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

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Sources: CBN; FBNQuest Capital Research



The difference between the M2 and M3 measures of money supply consists of CBN bills held by money holding sectors. These would be bills issued within the CBN's open market operations. These are formally tools for liquidity management and so do not appear in public debt data. The difference at end-November amounted to N8.06trn.

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