Pick-up In Private-sector Lending, More Needed


Tuesday, December 10, 2019 / 10:47 AM / by  FBNQuest Research / Header Image Credit: News Ghana


There has been a welcome pick-up in banks' net credit to the private sector, which has expanded y/y at double-digit levels for three successive months. The authorities will be looking for an acceleration in the growth, which remains below that for nominal GDP.


They will be hoping that the further rise in the CBN's minimum loan-to-deposit ratio (LDR) for banks to 65% with effect from end-December will provide the necessary boost. Its discounted cash reserve requirement is also viewed by the monetary policy committee (MPC) as a driver of enhanced credit extension.


The MPC's communique last month noted an increase of N1.17trn in "absolute gross credit" between end-May and end-October, which it attributed in good measure to the adjusted LDR for the deposit money banks. Manufacturing was the largest beneficiary, accounting for N460bn of the increase. Consumer loans provided another N360bn of the total.


It is unclear whether the lending of the state development banks and the CBN's own programmes for priority sectors are included in the headline figure. 


The NPL ratio for the banks has fallen to 6.6% as at end-October according to the communique. While on a downward trend, it remains above the CBN's prudential benchmark of 5.0%. Some analysts argue that the ratio will deteriorate again as a result of the rise in the minimum LDR. Another argument is that the banks should be able to develop their credit skills as they boost their loan books.


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. They are formally tools for liquidity management and therefore not included in public debt data. The difference at end-October amounted to N7.63trn.

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