February 9, 2024/FBNQuest Research

The most recent data from the Central Bank of Nigeria (CBN) shows that private sector credit extension (PSCE) increased by +50% y/y to NGN62.5trn in Dec ’23. This is the fastest growth rate for PSCE in 2023, surpassing the 45% y/y growth recorded in Sep ’23. On a m/m basis, PSCE extension expanded by +5% m/m. 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.

Based on a narrower measure of PSCE obtained from the recently released CBN’s Quarterly Statistical Bulletin (QSB) for Q3 ’23, total PSCE amounted to NGN39.1trn as at end-Sep ’23, implying an increase of +39% y/y. However, this series covers only lending by deposit money banks (DMBs).

This leaves a difference of around NGN23trn (between total PSCE and lending by DMBS), a little which can be partly attributed to the time lag of 3 months.

However, a large proportion of the difference can be explained by the CBN’s increasing credit interventions and lending by state-owned banks such as the Bank of Industry.

Credit extension to the government increased by +37% y/y to NGN33.7trn. This follows a marked decline of -77% y/y in the previous month.

In implementing monetary policy decisions, the monetary policy committee (MPC) usually considers the growth of monetary aggregates, particularly the broad money supply.

Regarding monetary aggregates, broad money supply (M3) and M2 money supply both grew by 51% y/y, broadly in line with PSCE growth.  

Looking ahead, we expect the MPC to tighten monetary policy conditions in response to the upward trajectory of headline inflation and the persistent rise in money expansion. As such, we expect the MPC to raise the interest rate by at least c.100bps in 2024.