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MPC members want CBN to extend loan forbearance by 12 months

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Ahead of March 1, 2021, which is the expiration date for the moratorium on the Central Bank of Nigeria (CBN) intervention facilities, members of the Monetary Policy Committee (MPC) have urged the regulator to extend the forbearance by 12 months.
They advised in their statement for the January 2021 MPC meeting, released by the CBN on Thursday.

This is expected to spur growth in the economy by giving more time for loan repayment and making cheap credit available to critical sectors of the economy.
The CBN on March 16, 2020, granted all Deposit Money Banks leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of Covid-19 particularly Oil & Gas, Agriculture, and manufacturing.

“I am supportive of extending this forbearance by an additional twelve months, which would enable Deposit Money Banks (DMBs) to continue providing reprieve to households and businesses through lower interest rates and repayment moratoriums,” Kingsley Obiora Isitua, MPC member said in his statement.

On 27 May 2020, the CBN approved regulatory forbearance for the restructuring of loans of Other Financial Institutions (OFIS) impacted by the outbreak of COVID19. The initiative is part of CBN’S policy measures to mitigate the impact of the pandemic on Nigeria’s economy.

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The CBN Circular dated 27 May 2020 with reference number FPR/ DIR/GEN/CIR/06/55 (the “27 May 2020 Circular”) sets out the scope of CBN’S approved regulatory forbearance for a restructuring of credit facilities in the OFI sub-sector as follows:

(i) A further one-year moratorium for CBN’S intervention facilities offered through participating OFIS effective from 1 March 2020.
(ii) A reduction of interest rates on CBN’S intervention facilities through OFIS from 9% to 5% per annum effective from 1 March 2020.

Adeola Festus Adenikinju, a member of the MPC said in his statement that there is a need for robust oversight on the financial sector and that the CBN must use all tools necessary to ensure that current forbearance granted to bank customers are not withdrawn prematurely.

Sanusi Aliyu Rafindadi, a member of the MPC noted that the money supply has continued to expand. Available data showed that the broadest money supply, M3, has increased by 10.97% in December 2020 relative to December 2019 and is well above the 6.84% provisional benchmark for 2020. The expansion was a result of the rise in both the Net Foreign Assets (NFA) and Net Domestic Assets (NDA). Domestic credit has expanded by 13.4% in December 2020.

Credit to the core private sector has grown by 15.35% in December 2020 chiefly reflecting the effect of the various CBN’s credit policies as well as the on-going development finance interventions. For instance, between November 2020 and January 2021, a total of N499.01 billion was disbursed under the 15 interventions, including Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS), Targeted Credit Facility (TCF), Anchor Borrowers Programme (ABP), Manufacturing Sector Stimulus, Electricity Market Stabilization Facility, CBN/BOI Facility, Export Development Facility, etc.

These policies have significantly affected interest rate developments. Available data shows that Prime Lending and Maximum Lending rates have declined between October 2020 and January 2021. Also, about 62.7% of the N8.421 trillion lent by the banking system as of December 2020 was lent at less than a 10% rate of interest per annum. As of December 2020, 92.32% of the total amount lent by the banking system was at less than a 20% interest rate.

“Notwithstanding the positive outlook, the Bank must remain vigilant given the uncertain macro environment and continue to monitor risks and vulnerabilities in the economy and their impact on financial system stability,” Aishah Ahmad, Deputy Governor, Financial Systems Stability Directorate, CBN, said.

In this respect, she said it should continue monitoring restructured and unrestructured industry loan portfolios, sustain dynamic stress testing and ensure banks build operational resilience by strengthening their cyber defences and business continuity planning.
Consolidating the industry’s earnings profile will also be critical to growing capital buffers; which will be important to enable it to manage likely financial and macroeconomic headwinds, she said.