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Banks’ deposits outgrow loans by N10.7bn in August

... As CBN reacts to NESG statement

Nigeria’s banking sector deposits outgrew total loans by N10.7 trillion in August 2020, the Central Bank (CBN) said on Tuesday.

As of August 2020, while total deposits have increased to N29.7 trillion, total loans were only N19 trillion. While total deposits stood at about N25 trillion in January 2020, total loans stood at N17 trillion, the CBN said.

The CBN disclosed this while reacting to a recent press statement by the Nigerian Economic Summit Group (NESG) questioning some of the measures taken by the apex bank.

A statement signed by Isaac Okorafor, CBN’s director, corporate communications, said the attention of the apex bank had been drawn to a recent press release by the Nigerian Economic Summit Group (NESG) titled ‘Matters of Urgent Attention’, “which calls into question some of the measures taken by the CBN to support the stability of our financial system and enable faster recovery of our economy, following the negative impact of the COVID-19 pandemic on Nigeria”.

The CBN said in the statement that based on what it termed very limited information and cross-country exposure, the NESG refers to the CBN’s recent directive, which simply sets a floor on saving rates as “price fixing”.

“Given that in an ideal economic textbook/theory, saving should be equal to investment, we expected total deposits should closely mirror total loans. Yet, over the past several months, we have noticed an increasingly large gap between total deposits in the banking system and total credit to the economy,” it said.

With respect to foreign exchange, the statement said the CBN operates two windows: wholesale and retail. In the wholesale window, banks are allocated FOREX weekly, which is meant to be allocated to their customers at their discretion, reflecting customer size and distributive efficiency, for final sale to parents paying school fees, patients settling medical bills abroad, SME traders importing small-scale inputs and raw materials, and general travellers for business and personal trips. The CBN also allocates a certain amount of FX to licensed BDCs per week, who resell to small-scale users. In both categories, the CBN says it does not know the final buyers of this FX.

In the retail window, banks submit a detailed list of applicants who are then allocated foreign exchange based on availability.

“Given that these submissions are first scrutinized by the banks and are accompanied by the provision of significant documentation, we do not understand the extra transparency being called for by the NESG,” the CBN said in the statement signed by Okorafor.

“On border closure, we are disappointed that the NESG has not shown any tendency to deeply interrogate the real reasons for the closure. While the CBN is not opposed to its reopening, we must never forget the real reason why that border was shut in the first place: significant economic sabotage involving smuggling of many fake products, drugs, small arms, and other goods.

“How can a Nigerian farmer struggle for months to plant, cater, and harvest their crops only to find that those crops cannot attract good prices because of smuggled products from across our borders? Does the NESG know that according to the International Trade Center, Benin Republic imports as much rice as China and nearly as much frozen chicken as the UK? In which country does the NESG think all these rice and chicken end up? How then can a Nigerian rice farmer or poultry owner survive?

“While the Federal Government is doing its best to tackle these issues and reopen the border, we must bear in mind that border issues require cooperation by other countries. But if these countries, given their huge benefits from a rigged system, deny there is even a problem, how can Nigeria reopen the border without resolving these matters?” the apex bank said.

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