In refunding 100% of CRR to banks, CBN targets credit expansion to real sector


At its July 2018 Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria pledged to refund Cash Reserve Ratio (CRR) to banks under certain conditions.

Part of such conditions is banks’ lending to Small and Medium Enterprises (SMEs). The move is to spur bank lending to high-impact sectors of the economy.

“Banks that bring proposals for funding of new projects or expansion of existing ones in agriculture and manufacturing sectors will, accordingly, qualify for CRR refund of up to 100 percent”, Godwin Emefiele, governor of the CBN said at a BusinessDay conference in Lagos last week.

Total value of credit allocated by the banks to the private sector stood at N15.13 trillion as at the fourth quarter (Q4) of 2018, according to the National Bureau of Statistics (NBS).

The NBS report showed that the oil and gas and manufacturing sectors got credit allocation of N3.55 trillion and N2.23 trillion to record the highest credit allocation as at the period under review.

“It was our expectation that banks would use this opportunity to expand credit to the manufacturing sector”, Emefiele said.

Magnus Nnoka, national president, Risk Management Association of Nigeria (RIMAN) said lending by the banking sector should be seen from two perspectives.

He said most times people tend to see the lending activities of banks from what goes to the private sector only, and recently this has led to a perception of banks not doing enough lending. However, “when we consider the huge funding the public sector has raised in the last few years, the narration should change. The argument rather, in some circles, is the negative impact of huge public sector borrowing in terms of crowding out the private sector. Having said this, we should appreciate that banks are set up to facilitate financial intermediation, hence they need to lend in order to make returns to investors”, Nnoka said.

“I think the challenge most banks face in lending is signing on quality credit or borrower’s ability in meeting the risk acceptance criteria for accessing loans. This is not also to rule out the challenges borrowers face in meeting certain lending conditions and of course relative cost of financing which can still be considered high particularly when you look at some economic sectors”.

“I therefore think that some of the measures to enhance lending will require improving quality of obligors”, he added.

Among issues to be addressed he said, are encouraging strong corporate governance, transparent financial reporting on the part of borrowers, as well as strengthening regulatory and judicial system for loan disputes settlement.

A culture of credit discipline, information asymmetry and self-disclosure are critical elements of any environment that seek to enhance credit creation activities.

Emefiele stressed that in order to ensure sustainable growth, efforts must be made to address factors that constrained the growth of businesses in Nigeria.

He explained that the CBN and Presidential Enabling Business Committee worked together to improve access to credit for underserved Nigerians, through the set-up of a National Collateral Registry and the passage of the Credit Bureau Act. Under this initiative, small and medium scale business will be able to provide movable assets such as cars, equipment’s and livestock as collateral in order to access capital from financial institutions relative to previous collateral requirements, which placed an emphasis on fixed assets.


Hope Moses-Ashike

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