August 6, 2020
by FBNQuest Research
Private-sector credit extension grew by 17.9% y/y in June (see chart), and therefore ahead of nominal GDP growth. Since the private-sector credit/GDP ratio remains below 20%, compared for example with over 75% in South Africa, the monetary authorities will be looking for such growth over many years. Following steady rises in the CBN’s minimum loan-to-deposit ratio for banks since Q3 2019, credit extension increased by 21.4% to N18.90trn in the 13 months to end-June according to the last meeting of the monetary policy committee (MPC).
This last figure for deposit money banks is about N10.7trn short of the total for June in the CBN’s broader series, on which our chart is based. We would explain the difference as largely due to the CBN’s increasing credit interventions and lending by the state-owned development banks.
The first listed bank to report in Q2 2020 has guided to a 15% expansion of its loan book this year. The rise falls to single-digit levels once we strip out the effect of devaluation/depreciation on its fx-denominated loans. Our sense is that the other reporting banks will give comparable guidance.
The same bank indicated that it was looking to restructure about 40% of its book in line with the CBN’s encouragement of forbearance with borrowers. Across the industry, the figures are 32,000 loans and a proportion closer to one third according to the personal statement of one MPC member. (The Central Bank of Kenya last week put the local figure at 29% of the total.)
Money and credit indicators (% chg; y/y)
Sources: CBN; FBNQuest Capital Research
The difference between the M2 and M3 measures of money supply consists of CBN bills held by money holding sectors. These would cover bills issued within its open market operations (OMO). The difference at end-June was N3.17trn, compared with N5.99trn at end-December. The decline tallies with the exit of offshore investors in OMO bills.