January 10, 2024/FBNQuest Research

According to the recently published monthly economic report from the Central Bank of Nigeria (CBN), deposit money banks (DMBs) total credit extension to the economy increased by a modest 0.7% m/m to NGN38.6bn in Aug ’23. This growth compares unfavourably with a 2.1% m/m growth recorded in the previous month. On a year-to-date basis, credit lending to the economy grew by 30.9% ytd. We had anticipated the moderate expansion in credit extension as banks adopted stricter credit standards in response to the heightened interest rate environment.

Broadly speaking, DMBs credit growth m/m across all sectors was relatively flat, except for a m/m decline in the agriculture sector.      

Specifically, the services sector, which was the largest recipient of DMB credit, and accounting for 52% of the total credit, increased slightly by 1% q/q to NGN20.1bn.  

The industry sector also experienced flattish growth (+1% m/m) to NGN16.7bn. Consequently, its share of contribution was unchanged at 43.2%.

Conversely, the agricultural sector, which retained its position as the lowest recipient of DMBs credit allocation, declined by -4% m/m to NGN1.8bn in Aug ’23.

Notably, banks’ credit growth to consumers was more significant. It grew by 17% m/m to NGN2.6bn.        

The m/m expansion in consumers’ credit was primarily due to a rise in demand for loans by financial agents.

The heightened demand for consumer loans reflects the rising cost of living due to the high inflationary environment.  

Moving forward, we continue to expect banks to maintain tight risk management frameworks due to the prevailing tight credit environment. As such, we continue to foresee modest credit extension to the economy by DMBs.