The complexion of bank credits and deposits across jurisdictions in Nigeria

The National Bureau of Statistics (NBS), in April 2016, released data on bank credits and deposits on a state by state basis. This is an interesting set of data, and provides some insight on the money multiplier dynamics across the different jurisdictions in Nigeria. A cursory look at the aggregate figures shows a total credit balance of N13.12trn and deposit balance of N17.18trn as at the end of 2015. Aggregate credit grew at a compounded annual growth rate (CAGR) of 11% between 2010 and 2015, while aggregate deposit grew at a CAGR of 15%.

Of the 5 years under review, aggregate credit contracted twice (the first 2 years), while aggregate deposit expanded throughout the period, although at a continuously slower rate. Coincidentally, both aggregate credit and deposit grew by 1% in 2015, a testament to how difficult the year was. The aggregate data also show that credit advanced expanded by N4.46trn in the review period, while deposit increased by N7.2trn in absolute terms. But all these only tell a part of the story.

Decomposing the numbers on a state by state basis threw up some interesting findings. On the credit side, surprisingly, Zamfara state, with a CAGR of 102%, grew the fastest, while Bayelsa state shored up the rear, with a -9% CAGR. Ebonyi, Nassarawa, Cross River and Katsina complete the top 5 fastest growing states with CAGRs of 88%, 64%, 55% and 51% respectively. Deposits in Zamfara state also grew the fastest, with a CAGR of 78%. Completing the quintet of states with the fastest growing deposit base are Edo, Taraba, Benue and Kebbi, with CAGRs of 43%, 38%, 36% and 35% respectively.

Although, it can be argued that the high growth rate exhibited by the smaller states is attributable to the base effect, this will not be completely true. As at 2011, Zamfara state contributed less than 0.1% to the total growth in credit. By 2015, this proportion had increased to 0.76%. Same is also noticeable in the proportion contributed by Zamfara state to the growth in deposits, which increased from 0.02% in 2011 to 0.35% in 2015.

As expected, Lagos state is the largest contributor to the expansion in both credit and deposit during the period under review, accounting for 63.5% of credit growth, and 33.7% of deposits growth. Rivers state is the second largest contributor to credit growth, followed by Kano, Oyo and the Federal Capital Territory (FCT), responsible for 9.7%, 2.7%, 2.5% and 2.4% of credit expansion respectively. The fact that Lagos accounted for only 33.7% of growth in a much larger deposit base compared to the 63.5% proportion in credit expansion, suggests that opportunities in other jurisdictions are being neglected. This is revealed by the credit to deposit ratios across the different States.

If we assume that deposits are generated from productive capacities and activities, then it suggests that states with low credit to deposit ratios are under-served and less explored. Zamfara, Lagos, Cross River, Osun and Kogi states at 117.5%, 108.9%, 69.9%, 64.3% and 56.1% respectively, have the highest loan to deposit ratios, while Yobe, Jigawa, Anambra, Edo and FCT at 11.7%, 12%, 14%, 14.8% and 16.1% respectively, have the lowest loan to deposit ratios. Although, it may be a function of the fact that many of the depositors in states with low loan to deposit ratios are operating in the informal sector, and may not qualify to access credit based on the current criteria, it is also an indication that opportunities abound for financial institutions beyond their usual areas of concentration.

Our resilience index, which measures how stable credit and deposit growths are across states, shows that Lagos, Yobe, Ogun, Rivers and Oyo, with scores of 6.2, 5.5, 5.5, 5.3 and 4.7 respectively, are the most stable credit advancing areas, while Lagos, Ogun, Oyo, Delta and Rivers, with index scores of 16.8, 14.3, 11.3, 10, and 9.9 respectively are areas that exhibit the least variability in deposit balance. These present opportunities for those institutions that can understand the needs of those areas beyond the ‘usual suspects’ that are keenly contested.

Olugbenga A. Olufeagba