Friday, June 04, 2021 / 09:30 AM / by FBNQuest
Research / Header Image Credit: FBNQuest
Lending to the private sector has increased at a double-digit rate y/y since August '19 although there are signs of slowing momentum. It expanded by 10.6% y/y in April, to NGN31.82trn (USD77.6bn). This series covers lending from all sources including the CBN and the state-owned development banks. The decent growth in this measure of private-sector credit extension (PSCE) is the result of the tightening by the CBN of its loans-to-deposits ratio for commercial banks to 60% as at September '19 and 65% three months later. There is still far 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, which helps to explain, inter alia, the paucity of tax collection and the bluntness of monetary policy.
A separate CBN series in the Quarterly Statistical Bulletin shows the allocation of credit by deposit money banks (DMBs). This gives us a total of NGN20.37trn. The large difference of more than NGN11trn with the fuller measure owes a little to the passage of time. The main explanation lies, however, in the extension of credit by the CBN in its development finance role.
The communiques of the monetary policy committee generally provide updates on the execution of this role. The most recent from late May tells us that NGN631bn had been disbursed under the CBN's anchor borrowers' programme, NGN253bn under the targeted credit facility and NGN856bn under the real sector intervention (mostly for light manufacturing). These are three of more than ten programmes.
The loans and advances of four development finance institutions, led by the recapitalized Bank of Industry, amounted to a further NGN940bn in aggregate at end-2020.
Lending to government grew by 16.6% y/y to NGN12.16trn in the broader measure in April. (The stock has more than doubled in little more than two years while that of PSCE has taken closer to eight to achieve the same.) Growth at this level gives rise to loose talk of "crowding out". The CBN covers the FGN's unfunded deficit through Ways and Means advances while the DMBs have been steady buyers of FGN paper when the returns have been attractive.
Currency outside banks grew by 21.2% y/y to NGN2.31trn in April, which reflects the uncertainty created by the Covid-19 virus. It has settled on a plateau this year in line with the easing of restrictions imposed by the authorities.
Money and credit indicators (% chg; y/y)
Sources: CBN; FBNQuest Capital Research