Wednesday December 22, 2021 / 10:25 AM / by FBNQuest Research / Header Image Credit: FBNQuest Research
We see from CBN data that total lending to the private sector increased by 18.6% y/y to NGN34.51trn (USD83.1bn) in October. In this data series private-sector credit extension (PSCE) covers lending from all sources including the CBN and the state-owned development banks. This is a decent rate of y/y growth, the highest in fact since August 2020: however, we should remember that Nigeria is underbanked.
Among the deposit money banks (DMBs), the larger institutions guided to loan book growth of around 10% this year, and the smaller operations closer to 15%. It may be that some banks would rather pay the CBN's penalties for falling short on the minimum loans-to-deposits ratio of 65% than disburse new credits that might in their view turn sour.
A narrower measure of PSCE is shared in another series in the CBN's Quarterly Statistical Bulletin. This covers only lending by the DMBs. The series shows a total of NGN21.90trn at end-June 2021, representing 16.4% y/y growth. We have therefore a gap of more than NGN12.5trn to explain, a little of which we can attribute to the time lag.
Manufacturing has seen the strongest loan growth of all sectors from the DMBs over the 12 months, amounting to 19.8%.
One reason for the increased loan books of the DMBs is exchange-rate weakness, which adds to the naira equivalent of the industry's fx-denominated loans. We assume that the oil and gas segment is the main beneficiary of these loans. DMBs' loans to the segment amounted to NGN5.32trn at end-June.
Reverting to the gap between the two data series, the bulletin also shows aggregate loans and advances by four development finance institutions, led by the recapitalized Bank of Industry (BoI), of NGN1.03trn at end-June. Robust y/y growth of 23.8% for these loans reflects the rapid expansion at the BoI, which concluded a USD1bn syndicated loan in December 2020 and plans to raise another EUR750m from the sale of global bonds. Funds raised are on-lent to Nigerian firms out to 10 years at single-digit interest rates.
A larger share of the gap can be linked to the CBN's ever-increasing role in development finance. The latest statement by the monetary policy committee in November again outlined the the CBN's exposure under its various interventions. They predate the pandemic of course but the momentum has picked up rapidly with an acceleration in disbursements and the launch of several new schemes.