March 5, 2024/FBNQuest Research
According to the CBN’s most recent data on money and credit, the net domestic credit to the private sector increased sharply by 85% y/y to NGN76.9trn in January 2024. While the three other monetary aggregates that we track also recorded double-digit growth rates y/y, their growth was outpaced by the growth in private sector credit extension (PSCE). January’s PSCE growth represents the fastest y/y growth in recent times. Regarding credit penetration, the level of PSCE represents a PSCE /GDP (2023) ratio of 34%, a marked improvement from the historical levels of around 20%. The PSCE/GDP ratio has also moved close to the sub-Saharan Africa average of 35.8%, according to World Bank Data.
This measure of PSCE covers lending by the entire banking system and not merely the deposit money banks (DMBs). It also covers lending by the CBN and state-owned development banks, such as the Bank of Industry, and smaller credit extension by other banks, such as micro-finance banks and non-interest bank.
It is worth noting that a significant driver of the y/y growth in PSCE growth is due to the significant depreciation of the naira relative to other major currencies. The naira has depreciated by roughly 51% of its value since June 2023 when the naira was floated.
Credit extension to the government increased by +36 y/y to NGN36.2trn, a comparable y/y growth to the growth rate registered in Dec ’23.
The other monetary aggregates, broad money supply (M3), and (M2) money supply both grew by 76% y/y, respectively.
At its meeting last week, the monetary policy committee (MPC) raised the policy rate by 400bps to 22.75% and increased the cash reserve ratio (CRR) to 45% in a bid to curb price pressures.
The strong expansion of money and credit growth also explains the MPC’s move to enhance monetary tightening measures.
Given the stringent monetary policy environment, we anticipate a slowdown in PSCE growth as banks curtail their lending activities in response to the tight monetary conditions. We see an average loan growth of in the late single-digits to the mid-teens range across our coverage universe.
