Culled—Proshare

September 24, 2020

By FBNQuest Research  

Private-sector credit extension expanded by 21.4% y/y in August (see chart). This rate is comfortably ahead of nominal GDP growth, which the authorities will welcome since Nigeria lags its peers by a margin for this metric. Credit extension/GDP remains below 20%. There has been an improvement, however, on the back of rises in the CBN’s minimum loan-to-deposit ratio for banks. Earlier this week the monetary policy committee noted a 24.1% increase in credit to N19.33trn in the three months to end-August. This figure relates, we assume, to deposit money banks (DMBs).                   

This last figure for DMBs is close to N11trn short of the total for August in the CBN’s broader series, on which our chart is based. We would explain the difference as largely due to the CBN’s own increasing credit interventions and lending by the state-owned development banks.

The data series for the DMBs’ lending by sector runs to March, and shows healthy increases of N760bn (34.1%) and N700bn (71.3%) over 12 months in loans to manufacturing, the second largest destination of bank credit, and general services respectively. For oil and gas, the leading destination, the rise was far smaller, and for power and energy there was no change. 

There is a tendency for equity analysts to assume that rapid credit growth brings a surge in NPLs. The CBN has pushed back what may or may not be inevitable with its encouragement of forbearance with borrowers. The DMBs have responded with requests to restructure large sections of their loan books.

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

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 cover bills issued within its open market operations (OMO). The difference at end-August was N2.97trn, compared with N5.99trn at end-December. The decline tallies with the trend of exiting offshore investors in OMO bills.