• Thursday, March 28, 2024
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Updated: CBN to cut banks’ appetite for govt’ lending

Emefiele

The Central Bank of Nigeria (CBN) is set to roll out a comprehensive framework that would discourage the current unlimited appetite by commercial lenders for government securities and encourage increased credit flow to the poorly served productive sectors of the economy.

CBN governor, Godwin Emefiele disclosed this on Tuesday as he announced the apex bank’s decision to hold all benchmark lending parameters, including the Monetary Policy Rate (MPR) at 13.5 percent; Cash Reserve Ratio (CRR) at 22.5 percent; Liquidity Ratio at 30 percent as well as asymmetric corridor of +200/-500 basis point around the MPR steady.

Responding to questions at press meeting on the outcomes of the meeting, Emefiele admitted that the MPC was signaling to the banks against their unlimited appetite for government securities which continues to crowd out the much needed private sector seen as the engine of growth.

“The truth is that according to our own regulation, there is a particular minimum percentage of government securities that the banks must invest in order to remain liquid but again, we have observed unfortunately and increasingly that banks rather than focusing on granting credit to the private sector tend to direct their focus mainly in buying government securities,” Emefiele explained.

Net Domestic Credit (NDC) grew by 19.31 per cent in April 2019 from end-December 2018 levels, annualized to 57.92 per cent, above its indicative benchmark of 11.82 per cent. The growth in the domestic credit was attributed to the significant increase in credit to both
government and the private sector, but while lending to government grew by 64.44 percent, loans to private sector only grew by 9.64 per cent.

“The monetary Policy Committee has frowned at that, and has directed the management of the bank to put in place policies or regulations that will restrict the banks from unlimited access to government securities,” the governor stressed.

Analysts said the intended policy directive on lending was bold considering that poor access to finance had for a long time been a critical issue confronting Nigerian businesses which government has not been able to resolve.

The decision taken during the two days meeting of the MPC in Abuja comes at a time when the apex bank appears to be in a dilemma of an inflation uptick and a slow, fragile economic growth.

According to figures from the National Bureau of Statistics, while inflation rose for the first time in 2019 to 11.37 percent in April from 11.25 percent in March, first quarter GDP was reported at 2.01 percent, lower than the 2.38 and 1.89 per cent reported in the previous and corresponding quarters of 2018, respectively.

“It is important and expedient that we do this because this country badly needs growth and for us to achieve growth, those whose primary responsibility it is to provide credit, who act at intermediaries in providing credit and are called catalysts to economic growth must be
seen to perform that responsibility.

“That they direct their liquidity to other channels other than channeling to the economy is what the MPC frowns at and has given the management the power to work out ways of limiting their appetite for government securities other than the private sector.

“CBN management will certainty take this up,” he stressed.

He however admitted that banks have always resisted creating credit to the private sector for fear of past experience with bad loans, and therefore the MPC has directed the management to think out what they called “an administrative, legal, regulatory frame work” to ensure that some of the credit risks that are associated with granting loans to the private sector which ultimately results in NPLs should be mitigated.”

Banks Non Performing Loans (NPLs) today stands averagely at 9-10 percent still higher than the 5 percent treshold but lower than the 15 percent recorded a year or two ago.

Emefiele also noted the MPC concerns that the consumer and credit market are not being catalysed, which he said was one of the inhibiting factors to growth.

He assured that the CBN would work out modalities to assist banks ensure consumer credit improves.

“We will aggressively pursue this, we will hold important and strategic discussions with Deposit Money Banks and make them understand the need to play this role as expected of them.

On the decision to hold all parameters of monetary policy constant which 9 out of 11 MPC voted for, Emefiele explained that although the slight inflation uptick should result in tightening, committee members felt that doing this will limit the ability of DMBs to increase credit
at this time, given the need to support or redirect the focus of DMBs to new credit in support of consumer, mortgage and other priority sectors of the economy, including, SMEs, agriculture and
manufacturing.

The members, he said also felt that given the fragile state of the economy, increasing the cost of credit would further diminish investment flow and impact negatively on output growth.

“For those who favoured a hold position, maintaining monetary policy rate at its present level was essential for better understanding of the momentum of growth before determining any possible modifications,” he explained.

“They also felt that retaining the current policy stance provides an avenue for evaluating the impact of the Bank’s intervention policies to support lending to the priority sectors of the economy.

On the other hand, the members who supported a loosening thought that it was desirable to aggressively stimulate growth, restart the capital market activities and increase lending at lower rates; which would ultimately stimulate domestic aggregate demand.

“Those against loosening felt that given that there was a marginal increase in headline inflation for April 2019, there is need to restrain from loosening in order not to exacerbate inflationary
pressures.

“They also felt the economy would experience liquidity surfeit and without corresponding increase in real sector output, inflationary pressures could be elevated; resulting in likely exchange rate pressures,” the governor further stressed.explained.

Onyinye Nwachukwu, Abuja