Single-Digit Growth in PSCE in July 2021

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Thursday, September 02, 2021 / 09:48 AM / FBNQuest Research / Header Image Credit: FBNQuest 

                                                                                                                                                                                     

Total lending to the private sector increased by 8.8% y/y in July to NGN32.8trn (USD79.9bn). The momentum is slowing, however. This data series, which is captured in today's chart, covers lending from all sources including the CBN and the state-owned development banks. The reasonable rate of growth in this measure of private-sector credit extension (PSCE) is the result of the pressure by the industry regulator (the CBN) on the industry to expand loan books. There is a long way to go in boosting financial intermediation when we consider the scale of the unbanked informal economy. Nigeria's PSCE/GDP ratio was just 19.8% at end-2020.

 

Another CBN series in the Quarterly Statistical Bulletin (QSB) shows the allocation of credit by deposit money banks (DMBs). This gives us a total of NGN21.02trn in March 2021, representing a y/y increase of 13.7%. There is therefore a difference approaching NGN12trn with the fuller measure (and a time lag of four months).

 

Part of the growth in lending by the DMBs is due to the weakness of the currency, which adds to the naira equivalent of the industry's fx-denominated loans. We assume that much of this lending would have been directed to the oil and gas industry.

 

Part of the noted difference in the two data series can be explained by the loans of four development finance institutions, led by the recapitalized Bank of Industry (BoI). These amounted to a further NGN940bn in aggregate at end-2020. In August the BoI announced that it planned to raise up to EUR750bn from the sale of global bonds. The funds raised will be on-lent to Nigerian companies out to ten years at single-digit rates.

 

The greater part of the difference can be explained by the execution of the CBN's development finance role. The latest communique from the monetary policy committee from July noted disbursements of NGN760bn uinder the anchor borrowers' programme, NGN920bn under real sector intervention and NGN320bn under the targeted credit facility. We assume that these are disbursements since the onset of COVID-19. They cover three of more than ten CBN lending programmes.

 

The y/y growth in money supply (M3) has slowed since the start of the year. This measure includes CBN bills held by money holding sectors, and it may well be that the slowdown reflects the reduced issuance of bills in support of the central bank's open market operations (OMO).   

 

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

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Sources: CBN; FBNQuest Capital Research


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