A Decent Rise in PSCE, Increased by 10.6% YoY to N31.25trn in March 2021


Wednesday, April 28, 2021 / 10:55 AM / By FBNQuest Research / Header Image Credit: FBNQuest 

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Net domestic credit to the private sector increased by 10.6% y/y to NGN31.25trn (USD76.2bn) at end-March according to the CBN's broad headline definition. This decent level of growth is a consequence of both the CBN's tighter loans-to-deposits ratio of 65% in place since December 2019 for the deposit money banks (DMBs) and its own expanding activities in development finance. The central bank has now disbursed more than NGN2.0trn within its many credit interventions in its response to Covid-19. Along with the monetary policy committee (MPC), it is convinced of the successful impact of its sectoral lending at sub-market rates. We should anticipate much more of the same.


This broad definition of private-sector credit extension (PSCE) from all lenders contrasts with another CBN series capturing total lending by the DMBs, which shows a figure of NGN19.36trn at end-September. The difference of close to NGN12trn can be explained by the CBN's interventions as well as the passage of six months.


On top of the CBN, we should add the loans from the four state-owned development banks including the Bank of Industry's book of NGN900bn.


A tier-two DMB has this week reported q/q increases of 8% and 3% in its loans and deposits respectively.


PSCE has now grown at double-digit levels y/y since August 2019, with the CBN in the driving seat as we have noted. The growth has helped to lift Nigeria's pitifully low PSCE/GDP ratio, which stood at 19.8% at end-December.


The consequences of the poor ratio, which lags South Africa's by more than 55 percentage points, are mostly negative, and include: the bluntness of monetary policy (limited passthrough from the policy rate to real economy rates); suboptimal financial inclusion; and unexciting GDP growth.


In the pandemic and its uncertainties, Nigerians have maintained healthy holdings of cash. Currency outside banks increased by 22.9% y/y to NGN2.32trn at end-March. Holdings have reached a plateau as Nigerians sense that the worst of Covid-19 may be behind them.


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

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Sources: CBN; FBNQuest Capital Research

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