The CBN’s latest data on money and credit shows that net domestic credit to the private sector increased by 19% y/y to NGN40.5trn in September.
This compares with a growth rate of 20.2% y/y in August. On a year-to-date (ytd) basis, the private sector credit extension (PSCE) is up 16% ytd.
The data in today’s PSCE chart reflects lending from all sources, including the CBN and state-owned development banks. The PSCE’s double-digit growth rate is encouraging, particularly considering that about 36% of the population is financially excluded according to EFina.
However, as shown in our chart, the growth of PSCE and other monetary aggregates track well behind credit growth to the government, which expanded by 76% y/y in September compared with between 19% and 24% for other monetary aggregates.
As such, a case can be made that the government’s access to credit is crowding out credit to the private sector.
A wider measure of data provided by the CBN, shows that the CBN’s claims on the federal government (FG) amounted to NGN27.7trn as of September ’22, of which NGN22.8trn was due to the bank’s ways and means advances to the FG.
The finance minister has disclosed plans to securitize the ways and means through treasury bills and bond issuance.
However, given the market’s current liquidity constraints, and the FGN’s proposal to borrow NGN8.8trn from domestic sources to help make up the shortfall in the 2023 budget, we have concerns about the market’s capacity to absorb this level of securitization.
In the alternative, the FGN may choose to implement a phased securitization.
The ways and means advances have grown by c.31% ytd. While conversations are ongoing on the likely ways to deal with the overhang, we urge the monetary authorities to gradually slow down the pace of advances to the FG.
In the meantime, we anticipate a slow-down in PSCE growth, as the full impact of the monetary policy committee’s interest rate hikes and other tightening measures take full effect.