Nigeria’s banking sector has demonstrated a robust expansion in private sector credit, despite tightened monetary policy, as evidenced by the Central Bank of Nigeria’s (CBN) latest data.
In July 2024, net domestic credit to the private sector surged by 33 percent year-on-year (y/y), reaching N75.4 trillion, from N56.46 trillion in July 2023.
This represents a slight deceleration from the 39 percent y/y growth observed in June 2024, yet remains a significant indicator of the sector’s vitality.
This growth encompasses credit extended across the entire banking spectrum—not only deposit money banks (DMBs) but also includes contributions from the CBN, state-owned development banks like the Bank of Industry (BoI), and smaller financial institutions such as microfinance and non-interest banks. The comprehensive measure highlights the expanding reach of financial services beyond traditional banking channels.
A key driver of the year-on-year increase in private sector credit (PSCE) has been the rise in foreign currency-denominated loans. This surge is largely attributed to the substantial depreciation of the naira over the past year, which has prompted businesses to seek loans in more stable foreign currencies. Despite this, the rate of PSCE growth has moderated slightly from a peak of approximately 65.9 percent y/y in May 2024, reflecting the CBN’s tightening of monetary policy.
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In contrast to the strong performance in private sector credit, other monetary aggregates have shown varied trends. Broad money supply (M3) and M2 money supply grew by 62 percent y/y, indicating that while the CBN has adopted a stringent monetary stance, the impact of naira depreciation and inflation continues to influence money supply growth. This persistent double-digit growth in M2 and M3 underscores the broader effects of economic pressures on currency and inflation.
Meanwhile, credit extension to the government has experienced a notable decline, falling by 31 percent y/y to NGN 19.0 trillion. This decrease signifies a slowdown in government borrowing from the financial sector, contrasting with the general upward trend observed in private sector credit.
Credit penetration, as reflected in the PSCE to GDP ratio, stands at 33 percent for 2023—up from the historical average of approximately 20 percent. Although this marks an improvement and brings Nigeria closer to the Sub-Saharan Africa average of 34.5 percent, the gap remains significant when compared to the global average of 147.6 percent, according to World Bank data.
Read also: Nigeria’s persistent inflation: Looking beyond Monetary Policy Rate
Most banks have experienced substantial deposit increases recently, enabling them to extend new loans and advances. Experts suggest that banks are well-positioned to continue creating more loans due to aggressive growth strategies and a favourable regulatory environment.
Operational reports from banks show significant growth in deposits in 2023. Access Holdings’ deposits rose from N6.10 trillion in 2022 to N9.4 trillion in 2023. Zenith Bank grew deposits from N5.86 trillion to N11.43 trillion, while FBN Holdings’ deposits increased from N5.25 trillion to N7.85 trillion. United Bank for Africa (UBA) doubled its deposits from N4.83 trillion in 2022 to N9.32 trillion in 2023, and Guaranty Trust Holding Company’s deposits rose from N3.47 trillion to N5.22 trillion.
Looking forward, it is anticipated that PSCE growth will continue to decelerate in the coming months, analysts at FBNQuest said. The CBN’s restrictive monetary stance is likely to exert further pressure on the rate of credit expansion, shaping the financial landscape as the Central Bank seeks to balance economic stability with growth.
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