Nigerian banks Net Domestic Credit (NDC), consisting of loans to the private sector and the government, has maintained a steady increase, rising to an all time high of N68.90 trillion in January 2023 despite the monetary policy tightening by the Central Bank of Nigeria (CBN).
The CBN’s latest data showed that NDC grew to N68.90 trillion in January 2023 compared to N50.08 trillion in the corresponding period of January 2022.
On a month-on-month basis, NDC grew by 3.68 percent to N68.90 trillion in January 2023 as against N66.45 trillion in December 2022.
Banks’ credit to the government rose by 78.79 percent to N26.64 trillion in January 2023 from N14.90 trillion in January 2022. It also increased by 8.07 percent month-on-month from N24.65 trillion in December 2022.
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Nigerian lenders’ credit to the private sector increased to N42.25 trillion in January 2023, representing a 20.09 percent increase over N35.18 trillion in the corresponding period of January 2022. On a month-on-month basis, it went up by 3.48 percent from N40. 83 trillion in December 2022.
In its daily morning note on Monday, using the CBN’s data FBNQuest noted that the domestic credit to the private sector increased by 19.7 percent y/y in December 2022. The strong growth followed a 17.5 percent y/y increase in private sector credit extension (PSCE) in the previous month.
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 microfinance and non-interest banks.
“Despite the rapid growth of PSCE in recent years, the extent of Nigeria’s financial deepening still lags behind that of its peers in emerging markets and sub-Saharan Africa,” analysts at FBNQuest said.
Based on 2021 GDP, Nigeria’s private sector credit extension to GDP ratio is equivalent to about 24.0 percent. This compares with 38.3 percent for the broad group of sub-Saharan African peers according to data from the World Bank.
Although almost all the monetary aggregates showed similar growth rates with PSCE growth, credit growth to the government continued to outpace others, as it increased by 78 percent y/y.
Notably, broad money (M3) which is typically watched closely by the monetary policy committee (MPC) increased by 17.3 percent y/y, down from 21.6 percent y/y the previous month.
The MPC increased the policy rate by 500bps last year and a further 100bps in January 2023 to 17.5 percent. However, the recent data on the monetary aggregates – particularly those on M3 and credit to government – indicate that as at end-December 2022 the rate hikes were yet to have the desired effect they should.
On a related note, the World Bank and International Monetary Fund have persisted in advising the CBN against using ways and means financing to cover the unfunded portion of the fiscal deficit.
“The continued growth of monetary aggregates and the unabated rise in headline inflation, which increased to 21.8 percent y/y in January 2023 from 21.3 percent y/y in December 2022, suggest that the MPC may need to raise rates further over the next few MPC meetings,” the analysts said.
During its last meeting in January 2023, the MPC noted the continued resilience of the banking system, evidenced by the progressive improvement in the Non-Performing Loans (NPLs) ratio from 4.9 per cent in November 2022 to 4.2 per cent in December 2022.
The Committee also noted that the liquidity ratio was well above its prudential limit at 44.1 per cent, while the Capital Adequacy Ratio (CAR) remained at 13.8 per cent in December 2022 compared with the preceding month, staying within its prudential range of 10.0 -15.0 per cent.
