Banks’ Private Sector Credit Growing Yet Nigeria Remains Underbanked

Deposit Money Banks’ (DMBs) total lending to the private sector increased by 18.5 percent year-on-year to N35.7 trillion in December 2021, according to data from the Central Bank of Nigeria (CBN).

The 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 percent y/y growth, it is still respectable, said FBNQuest.

Excluding December, analysts at FBNQuest said 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 percent of the population having access to formal banking services, while 36 percent are financially excluded, according to EFinA.

A narrower measure of private sector credit expansion is captured in another series in the CBN’s quarterly statistical bulletin which covers only lending by banks. It shows a total of N21.8 trillion at the end of September 2021, representing 17.8 percent year/year growth.

“We have therefore a gap of almost N13trn to explain, some of which we can attribute to the lag of three months,” the analysts said.

However, increased disbursements under the CBN’s development finance initiatives most likely explain the difference. The latest Monetary Policy Committee (MPC) communique for January 2022 listed cumulative disbursements of N928 billion under the anchor borrowers programme, N1.4 trillion under real sector intervention, and N370 billion 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 year/year declines to low-single-digits, largely because of low asset yields on investment securities”.

A secondary factor, the analysts noted was currency weakness, which adds to the naira equivalent of the industry’s foreign exchange-denominated loans. The oil and gas segment was the principal beneficiary of the loans. DMBs’ loans to the segment amounted to N5.5 trillion at the end of September 2021. Other notable beneficiaries were manufacturing and general commerce.

The data also show that credit growth to the government slowed to about 10.7 percent y/y as at December 2021, its weakest in recent times. Prior to December, credit growth to the government accelerated to an average of about 30.6 percent between May and November 2021 due to the government’s reliance on borrowings to plug its financing gap.

The sustained credit expansion by the Other Depository Corporations (ODCs) to other sectors increased sectoral credit, according to the CBN’s economic report for the month of October 2021. Credit utilisation by sectors of the economy grew by 4.1 per cent to N22.80 trillion at the end of September 2021, owing, largely, to increased credit to trade/general commerce.

A breakdown of the credit showed that the industry and services sectors remained the dominant sectors, as their share in total credit stood at 41.7 per cent and 52.9 percent, respectively, compared with 42.3 per cent and 52.4 percent at the end of June 2021. The agricultural sector’s share increased marginally to 5.4 per cent compared with 5.3 per cent at the end of June 2021.