Private Sector Credit Extension (PSCE) Increased by 45% YoY to N58.6trn in September 2023

The most recent data from the Central Bank of Nigeria (CBN) shows that private sector credit extension (PSCE) increased by 45% y/y to NGN58.6trn in Sep ’23. The growth marks the fastest pace of PSCE growth this year.  On a year-to-date basis (ytd), PSCE expanded by 40% ytd.  The data covers lending by the entire banking system and not only the deposit money banks (DMBs). It also captures lending by the CBN and state-owned development banks, such as the Bank of Industry, and smaller credit extensions by other banks, including micro-finance banks and non-interest banks.

According to a narrower measure of PSCE obtained from the CBN’s Quarterly Statistical Bulletin (QSB) for Q2 ’23, total PSCE reached NGN37.5trn as at end-Jun ‘23, representing an increase of 40% y/y. This series covers only lending by deposit money banks (DMBs).

This leaves a gap of around NGN21.1trn as at Jun ‘23 (between total PSCE and lending by DMBs) of which we estimate that around NGN6trn is attributable to the lag of 3 months.

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

The significant growth in PSCE was driven mainly by the loan growth of DMBs. For most banks within our coverage, the loan book has grown by between 15% and 50% ytd.

However, given that roughly over 45% of banks’ loan books are foreign currency denominated, a sizable proportion of the loan book expansion was driven by the >40% devaluation of the Naira.

Although credit growth to the government slowed down to 49% y/y from 65% y/y the previous month, it is still outpaced other monetary aggregates, with broad money supply M3 and M2 money supply growing at around 35% to 36% y/y.

With the Sept ‘23 headline inflation rate at 26.7% and the continuous expansion of money supply, we believe that the Monetary Policy Committee (MPC) will want to demonstrate its commitment to rein-in inflation by tightening monetary policy conditions.

As such, we anticipate a rate hike of c.50bps by the MPC at its next meeting in Nov ‘23