May 24, 2023/FBNQuest

According to the CBN’s most recent Quarterly Statistical Bulletin (QSB) for Q4 ’22, deposit money banks (DMB) total credit extension to the economy increased by 4.4% q/q to NGN29.4trn. On a year-on-year basis, DMBs’ credit to the economy increased by 20.8%. The y/y trend broadly mirrors the 21.3% y/y average loan growth across our universe of banks in 2022. The data is a subset of private sector credit extension (PSCE) focused solely on Deposit Money Banks (DMBs). Consequently, it does not include credit extension by entities like the CBN and state-owned development banks such as the Bank of Industry.

The sectoral composition of DMBs’ credit to the economy has remained largely unchanged, with the oil and gas sector (including services) continuing to account for the largest share at 22.5%.

Despite the apparent disparity between the oil and gas sector’s significant share of credit from DMBs and its contribution to GDP, this allocation can be justified by the fact that the sector accounts for almost 90% of merchandise export earnings.

The manufacturing sector emerged as the second-largest recipient of credit from DMBs. Its share of total credit increased by over 80bps q/q to 18.9%.

Some of the primary beneficiaries of credit within this broad group are companies in cement, fast-moving consumer goods, and food and beverage.

The financial and insurance sector, along with trade and general commerce, were also significant sectors in terms of credit extension. These sectors accounted for 9.3% and 9.0% respectively of the total credit distributed by DMBs.

Of particular interest was the fact that the information and communications sector’s share of credit was just 4.1%, despite contributing around 16.6% of GDP.

While the share of credit from DMBs to agriculture improved to c.6.2% from 5.9% in Q3 ’22, there is still significant potential for further credit advancement in the sector, considering its 25.6% share of the total economic output in 2022.

However, lending to the sector faces hindrances such as risks related to insecurity and flooding in food-growing communities.

Looking ahead, we anticipate that the prevailing high-interest rate environment will prompt DMBs to adopt stricter credit lending standards, resulting in slower growth for credit extension.