Data from the CBN shows that total lending to the private sector increased by 18.5% y/y to NGN35.7trn in Dec ’21. In this data series, private-sector credit extension (PSCE) covers lending from all sources, including the CBN and the state-owned development banks. Although the credit expansion rate is lower than the previous month’s 20.3% y/y growth, it is still respectable. Excluding December, the trend for credit growth has been upwards. Despite some improvement in credit extension, it is important to note that Nigeria remains underbanked, with just about 45% of the population having access to formal banking services, while 36% are financially excluded, according to EFinA.
A narrower measure of PSCE is captured in another series in the CBN’s Quarterly Statistical Bulletin which covers only lending by deposit money banks (DMBs). It shows a total of NGN21.8trn at end-Sep ’21, representing 17.8% y/y growth. We have therefore a gap of almost NGN13trn to explain, some of which we can attribute to the lag of 3 months.
However, increased disbursements under the CBN’s development finance initiatives most likely explain the difference. The latest MPC communique for Jan ’22 listed cumulative disbursements of NGN928bn under the anchor borrowers programme, NGN1.4trn under real sector intervention, and NGN370bn under the targeted credit facility (TCF), amongst others.
With respect to the DMBs, one of the reasons for the robust loan growth is that banks had to boost volume (loan) growth to partly compensate for low asset yields.
We see from our universe of bank stocks that, excluding UBA and Access Bank that delivered meaningful growth, funding income (net interest income) growth for our universe of banks was disappointing, ranging from double-digit y/y declines to low-single-digits, largely because of low asset yields on investment securities.
A secondary factor is currency weakness, which adds to the naira equivalent of the industry’s fx-denominated loans. The oil and gas segment is the principal beneficiary of these loans. DMBs’ loans to the segment amounted to NGN5.5trn at end-Sep ’21. Other notable beneficiaries are manufacturing and general commerce.
The data also show that credit growth to government slowed to c.10.7% y/y as at Dec ’21, its weakest in recent times. Prior to December, credit growth to government accelerated to an average of c.30.6% between May and Nov ’21 due to the government’s reliance on borrowings to plug its financing gap