A Further Welcome Advance in PSCE in February 2021


Tuesday, April 06, 2021 / 09:13 AM / By FBNQuest Research / Header Image Credit: FBNQuest

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Net domestic credit to the private sector rose by 15.2% to NGN30.72trn (USD74.9bn) at end-February according to the CBN's broad definition. This healthy growth reflects a combination of 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 saw in the latest communique of the monetary policy committee (MPC) from late March that the CBN had disbursed NGN2.0trn within its many 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 more of the same.


This broad definition of private-sector credit extension (PSCE) from all lenders contrasts with the figure of NGN19.36trn for total lending by the DMBs at end-September in a separate CBN series. The difference of c. NGN11trn is accounted for in good measure by the CBN's many credits, not forgetting the passage of five months.


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


On Thursday, a tier-two DMB, reporting its results for Q4 '20, announced loan growth of 4% q/q (and deposit growth of 13% on the same basis).


Amid the uncertainties created by the virus, Nigerians have naturally sought greater access to their cash. Currency outside banks increased by 29.9% y/y to NGN2.32trn in February. The increase took off in March '20 on the emergence of the virus.


PSCE has now increased at double-digit levels y/y since August 2019. This has helped to improve Nigeria's PSCE/GDP ratio from 18.5% at end-2019 to 19.8% in December '20. Underbanked and with a large informal economy, however, Nigeria still lags its peer economies by a wide margin.


Finally, we ask the MPC to quote a consistent measure of credit expansion in its communiques. In March we read that banking sector credit to the economy had increased by 1.8% m/m in February to NGN43.67trn, which we identified as the total for lending to the government and the private sector combined in the CBN's headline series. In January, however, the committee cited a figure for banking sector gross credit at end-December of NGN25.02trn, which we struggle to reconcile to any statistical series.


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

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Sources: CBN; FBNQuest Capital Research

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