Tuesday, February 02, 2021 / 11:01 AM / by FBNQuest Research / Header Image Credit: iStock

Netdomestic credit to the private sector increased by 13.0% y/y to NGN30.17trn atend-December (USD76.6bn at the rate on 30 December) according to the CBN. Ithas now posted double-digit growth since April '19, which reflects in part theCBN's tightening of its loans-to-deposit ratio for deposit money banks (DMBs)to 65% with effect from December '19. Another factor has been the developmentfinancing by the CBN, which has disbursed NGN2trn under its various creditinterventions since the emergence of the Covid-19 virus according to the latestcommunique from the monetary policy committee (MPC). The interventions willcontinue, and most likely accelerate, judging from the committee's exhortationsto the CBN.

The CBN's aggregate 'big picture' total above compares with lending by the DMBs of NGN19.92trn at end-September.We do not look to muddy the waters without reason but have to note that thecommunique quoted a third measure (of NGN25.02trn at end-December).

This y/y growth for the big number isabout three percentage points above nominal growth in Q3 '20. We need to seemany repeats to transform Nigeria's low financial intermediation and inclusion.Its gross PSCE/GDP ratio is one of the weaker points in the credit story: itwas just 18.5% at end-2019, compared with 76.3% in South Africa.

The virus has reduced the FGN'srevenue and boosted its borrowing. Reverting to the CBN's big number series, wefind that credit to government (from all lenders and not only the DMBs)represented 27.5% of total credit to all parties in December '20, compared with26.2% one year earlier and 17.6% in November '18. Our comment on revenuecollection still holds and the FGN's fiscal stance is as expansionary as ever,so we should expect a further rise in the share of credit to government.

Given the restrictions on personalmovement due to the virus and the broader economic uncertainty, we would haveexpected the population to increase their holdings of cash. So it does not comeas a surprise that currency outside banks increased by 23.3% y/y in December toNGN2.50trn. The other component of narrow money is demand deposits, which grewby 58.5% over the same period. 

The difference between the M2 and M3measures of money supply consists mostly of CBN bills with money holdingsectors. It picked up to about NGN720bn in December, which may have been theresult of the CBN's issuance of its new special bills.

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