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