Missing the mark of CRR reduction as banks not lending to real sector

A major concern by the Monetary Policy Committee (MPC) which sat for the first time in the year in Abuja last week was the observation that the goal of increasing lending to key sectors of the economy is yet to be achieved.

The Central Bank of Nigeria (CBN) had in November 2015 put some measures in place to ensure the stability of the financial system and to encourage lending to the real sector of the economy by banks, following the Treasury Single Account (TSA) withdrawals and J. P. Morgan delisting of Nigeria.

Such measures include the reduction in Monetary Policy Rate (MPR), the rate at which the CBN lends to banks to 11 percent from 13 percent and the cut in Cash Reserve Requirement (CRR) which is the monetary tool used to call u excess liquidity or release funds in the system, to 20 percent from 25 percent.

Godwin Emefiele, governor of CBN, clearly stated that the liquidity arising from the reduction of the CRR will only be released to the banks that are willing to channel it to employment generating activities in the economy such as agriculture, infrastructure and solid minerals.

Barely three months after the monetary easing by the MPC, deposit money banks are yet to commence lending to the real sector of the economy.

Industry watchers have attributed the banks inaction in terms of lending to the risk profile of those sectors that require banks funding.

Abubakar Suleiman, chief financial officer, Sterling Bank plc, said three months is too short to see result, adding that it means that banks did not do thorough job of risk assessment. He said a lot of work is being done across the banking industry, urging the government to make it easier for banks to lend to real sector.

However, the CBN said it would continue to adopt moral suasion to encourage the DMBs to support financing for targeted lending to the real sector as well as agriculture, solid minerals and SMEs sectors of the Nigerian economy.

Before the reduction in CRR and lending rate, deposit money banks had hidden under increase in cash reserve requirement with the attendant quantum of sterilized fund, to resist lending to the economy.

A report by Afrinvest shows that average loan and advances for Tier-1 and Tier-2 banks slowed to 27.4 percent and 24.7 percent in full year 2014 from 48.2 percent and 33.6 percent in full year 2013. However, the banks’ ability to pass the increased effective cost of funds to customers is traceable to the floating interest rate structure on borrowing.

Ike Chioke, managing director/CEO of Afrinvest (West Africa) Limited had said the lending structure in the next decade should reflect the changing economic structure as banks take advantage of the faster growth rate and expanding opportunities in the non-oil sectors of the economy.

‘We believe banks will need to diversify mining/natural resources to the utilities, manufacturing and services sectors including household, real estate, education, health, transport and communication”, he said in a report. Using innovative products to make payments seamless for customers.

HOPE MOSES-ASHIKE