Welcome Pick-up in PSCE Growth in December 2020


Tuesday, February 02, 2021 / 11:01 AM / by FBNQuest Research / Header Image Credit: iStock


Net domestic credit to the private sector increased by 13.0% y/y to NGN30.17trn at end-December (USD76.6bn at the rate on 30 December) according to the CBN. It has now posted double-digit growth since April '19, which reflects in part the CBN's tightening of its loans-to-deposit ratio for deposit money banks (DMBs) to 65% with effect from December '19. Another factor has been the development financing by the CBN, which has disbursed NGN2trn under its various credit interventions since the emergence of the Covid-19 virus according to the latest communique from the monetary policy committee (MPC). The interventions will continue, and most likely accelerate, judging from the committee's exhortations to the CBN.


The CBN's aggregate 'big picture' total above compares with lending by the DMBs of NGN19.92trn at end-September. We do not look to muddy the waters without reason but have to note that the communique quoted a third measure (of NGN25.02trn at end-December).


This y/y growth for the big number is about three percentage points above nominal growth in Q3 '20. We need to see many repeats to transform Nigeria's low financial intermediation and inclusion. Its gross PSCE/GDP ratio is one of the weaker points in the credit story: it was just 18.5% at end-2019, compared with 76.3% in South Africa.


The virus has reduced the FGN's revenue and boosted its borrowing. Reverting to the CBN's big number series, we find that credit to government (from all lenders and not only the DMBs) represented 27.5% of total credit to all parties in December '20, compared with 26.2% one year earlier and 17.6% in November '18. Our comment on revenue collection still holds and the FGN's fiscal stance is as expansionary as ever, so we should expect a further rise in the share of credit to government.


Given the restrictions on personal movement due to the virus and the broader economic uncertainty, we would have expected the population to increase their holdings of cash. So it does not come as a surprise that currency outside banks increased by 23.3% y/y in December to NGN2.50trn. The other component of narrow money is demand deposits, which grew by 58.5% over the same period. 


The difference between the M2 and M3 measures of money supply consists mostly of CBN bills with money holding sectors. It picked up to about NGN720bn in December, which may have been the result of the CBN's issuance of its new special bills.


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

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Source: CBN;  FBNQuest Capital Research

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