October 3, 2023/FBNQuest Research
According to data from the Central Bank of Nigeria (CBN), private sector credit extension (PSCE) increased by 36% y/y to NGN54.2trn as at end-July ’23. The month’s growth rate slightly outpaced the 35% y/y growth it delivered in June ‘23. On a year-to-date (ytd) basis, PSCE grew by +23% ytd. The PSCE data reflects lending from all sources, including CBN and state-owned development banks, such as the Bank of industry, and smaller credit extensions by other banks, such as micro-finance and non-interest banks.
Nigeria’s PSCE to GDP (2022) ratio is approximately c.24%. This compares with 38.3% for the broad group of sub-Saharan African peers based on data from the World Bank.
According to the data, credit extension to the government expanded by 61% y/y, although it was lower than the 72% y/y growth recorded the previous month.
Credit extension to the government has averaged c.75% y/y over the past seven months leading to July ’23. This outpaced the combined average growth rate of c.67% y/y of all other monetary aggregates that we track.
The surge in credit extension to government can be attributed to revenue shortfalls relative to expenditure, resulting in government’s fiscal deficits. As such, the funding shortfalls have led to a rise in domestic and external borrowings.
Additionally, the restrictive monetary policy stance by major central banks around the world, which has resulted in tighter global credit conditions, has shifted the government’s focus to the utilization of domestic borrowing to plug its funding gap.
Broad money supply M3, and money supply M2 also showed similar robust y/y growth rates with PSCE growth.
Despite the CBN’s sustained efforts to tighten monetary rates to anchor inflationary pressures, there appears to be no slowdown in the surge in money supply.
Notably, the periodic monetary policy committee meeting originally scheduled to hold last week has been postponed by the CBN.
Although, no specific reason was given by the apex bank, we can conclude that the deferral is related to the recent change in leadership guard.
