Credit is one of the several inputs in short supply in Nigeria. Private-sector credit extension at end-2016 represented just 21.9% of GDP, compared with 75.0% in South Africa. Nor is there impressive growth to suggest that the gap is narrowing. CBN data from a different series to that shown in our chart highlight an increase of 19.4% y/y in December in naira terms: we should note, however, the large share allocated to the oil and gas sector and the weight of those loans denominated in fx. The increase would otherwise have been negligible.
One aim of monetary policy in 2016 was to persuade the deposit money banks (DMBs) to boost their lending to what the CBN termed job-creating and productive sectors such as agriculture and manufacturing. Neither lectures nor incentives worked.
DMBs’ lending to agriculture has risen from about 1% to about 4% of their total loan books over three years. This will not bring about the rapid growth in agro-industry underpinning the FGN’s strategies of import substitution and economic diversification, and explains why the CBN has launched three subsidised credit schemes for the sector in the past decade.
In February the average prime and maximum lending rates of the DMBs were 17.1% and 29.3%. At the time, FGN bonds were yielding more than 16% and longer tenor NTBs more than 22%.
Faced with this choice and allowing for the sizeable risk attached to most credit applications from the real economy outside the blue chips, it is little surprise that the DMBs have accumulated very large positions in FGN paper.
Until those yields retreat substantially and credit applications improve, we do see not much change.