Tracking CBN’s intervention funds and banking sector soundness

The Central Bank of Nigeria (CBN) in May 2022 tightened its monetary policy stance known as the Monetary Policy Rate (MPR) to contain rising inflation.

Inflation continued to rise unabated across several advanced economies and is projected to remain high, at least in the medium term, as food and energy prices pushed higher to levels not previously recorded in four decades.

Nigeria’s inflation rate accelerated to 17.71 percent in May 2022 from 16.82 percent in April 2022, according to the National Bureau of Statistics (NBS).

The CBN joined the Central Banks across the globe to raise its benchmark interest rate by 150 basis points to 13 percent, the first time in six years. The apex bank retained the asymmetric corridor around the MPR at +100 /-700 basis points, Cash Reserve Ratio (CRR) at 27.4 percent, and Liquidity Ratio (LR) at 30 percent.

Consequently, deposit money banks have reprised their assets after the MPC decision, while savings rates remain constant. “Given the positive correlation of market lending rates to the MPR, it is expected that borrowing costs will rise, possibly restricting loan growth,” said Aisha Ahmad, deputy governor in charge of financial system stability.

“Gratuitously, the CBN’s intervention loans targeted at selected industries and SMEs will remain at 5 per cent per annum till March 2023, which stabilizes access to affordable finance for employment generating sectors,” she said.

This, she said, should be positive for the macro economy, stimulating further output growth and positioning businesses to maintain strong cash flows whilst minimising default risk and preserving financial stability.

The Monetary Policy Committee (MPC) was of the view that rates on the development finance initiatives of the Central Bank should remain at 5 percent till March, 2023.

During his maiden address on June 5, 2014, Godwin Emefiele, governor of the CBN stated that his vision would be to ensure that the Central Bank of Nigeria was more people focused, as its policies and programs would be geared towards supporting job creation, reducing the high level of Treasury Bill rates, improving access to credit for Micro Small and Medium Enterprises (MSMEs), deepening its intervention program in the agricultural sector, building a robust payment system infrastructure that will help drive inclusion, in addition to key macroeconomic concerns such as exchange rate stability, financial system stability and maintaining a strong external reserve.

At its last meeting in May this year, the MPC reviewed the performance of the Central Bank’s intervention schemes targeted at stimulating productivity in agriculture; manufacturing/industries; energy/infrastructure; healthcare; exports; and micro, MSMEs.

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Consequently, between April and May 2022, the CBN released the sum of N57.91 billion under the Anchor Borrowers’ Programme (ABP) to 185,972 new projects for the cultivation of rice, wheat, and maize, bringing the cumulative disbursement under the Programme to N1.01 trillion, disbursed to over 4.2 million smallholder farmers cultivating 21 commodities across the country.

Africa’s largest economy’s Central Bank further disbursed the sum of N1.50 billion, under the Accelerated Agriculture Development Scheme (AADS), to one new youth-led project, piloted and funded through the government of Ondo State for the acquisition of assets for oil-palm cultivation and the establishment of poultry farms. This brings the total disbursement under the scheme to N21.23 billion for 10 state-led and three private sector-led projects.

In addition, the CBN released N21.73 billion to finance seven large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS). The funds were utilized for the establishment of a ranch and milk processing facility; procurement of feed and medication for livestock/dairy production; construction of a 300 metric-tonne per day oil mill in Gusau, Zamfara State; acquisition and installation of an agrochemical factory; as well as purchase and stockpiling of home-grown maize for animal feed production.

This brings the cumulative disbursement under this Scheme to N741.05 billion for 674 projects in agro-production and agro-processing.

Under the Paddy Aggregation Scheme (PAS), N6.20 billion was disbursed by the CBN to three new projects for the purchase and mopping-up of home-grown rice paddy. This brings the total funds disbursed to 42 integrated rice millers under the PAS to N106.39 billion.

To support the growth of the manufacturing sector, the Banking sector regulator disbursed the sum of N436.85 billion to 34 new projects under the N1.0 trillion Real Sector Support Facility (RSSF). This was utilized for both greenfield (new) and brownfield (expansion) projects under the COVID-19 Intervention for the Manufacturing Sector (CIMS) and the Real Sector Support Facility from Differentiated Cash Reserve Requirement (RSSF-DCRR). Cumulative disbursement under the RSSF for the financing of 402 real sector projects across the country, currently stands at N2.10 trillion, the CBN said.

Nigeria’s big Bank disbursed N55.34 billion, under the 100 for 100 Policy on Production and Productivity (100 for100 PPP), to 44 projects, comprising 24 in manufacturing, 17 in agriculture, 2 in healthcare, and 1 in the services sector.

In the healthcare sector, the CBN disbursed N17.70 billion to four healthcare projects under the Healthcare Sector Intervention Facility (HSIF), bringing the cumulative disbursements to N130.49 billion for 126 projects, comprising 58 hospitals, 31 pharmaceuticals and 37 other healthcare services.

The CBN released the sum of N21.00 billion Under the Export Facilitation Initiative (EFI), for three projects in domestic production and value addition of cocoa and sesame seed. This intervention is targeted at further expansion of the economy’s non-oil export basket towards improving foreign exchange revenue earnings for the country.

To support micro, small and medium enterprises, the Central Bank disbursed N1.50 billion to 2,718 new projects through the Agri-Business Small and Medium Enterprises Investment Scheme (AgSMEIS) for activities in fish farming, rice processing, wheat farming, poultry farming, livestock farming, ICT and tailoring amongst others. This brings the cumulative disbursements under AgSMEIS to N136.13 billion.

Under the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), the CBN disbursed N2.79 billion to support youths engaged at various nodes of the agricultural value chain, bringing the total disbursement under this intervention to N98.88 billion to 749 MSME projects across the country.

In energy/infrastructure, the Central Bank released N15.71 billion to power sector players including generation companies (GenCos) and gas companies (GasCos), under the Nigeria Bulk Electricity Trading Plc – Payment Assurance Facility (NBETPAF), bringing the cumulative disbursement under the facility to N1.30 trillion.

The sum of N22.67 billion was also released to Distribution Companies (DisCos) for their Operational Expenditure (OpEx) and Capital Expenditure (CapEx), under the Nigeria Electricity Market Stabilisation Facility – Phase 2 (NEMSF-2). Cumulative disbursement under the NEMSF-2 currently stands at N251.93 billion.

Additionally, under the National Mass Metering Programme (NMMP), the Bank has disbursed N0.19 billion to DisCos for the procurement of electricity meters, bringing the cumulative disbursement for the procurement and installation of 865,956 meters across the country to N47.82 billion. Interventions in energy/infrastructure are designed to improve investment and develop enabling infrastructure in the Nigeria Electricity Supply Industry.

A review of the banking industry shows that the banking industry has continued to remain resilient, with all the ratios indicating that the industry is sound, according to Sanusi Aliyu Rafindadi, member of the MPC.

The Capital Adequacy Ratio (CAR) of the industry was 14.6 percent as at April 2022, which was above the regulatory minimum of 10 percent. The Non-Performing Loan (NPL) ratio was 5.3 percent, slightly above the regulatory maximum of 5 percent. The industry’s total credit to the economy has also increased by N4.65 trillion or 21.66 percent between April 2021 and April 2022.

Gross industry credit, which stood at N26.1 trillion in April 2022, has steadily increased since 2019 largely as a result of the Bank’s Loan to Deposit Ratio (LDR) policy. Analysis of the interest rate band reveals that 70.93 percent of customers paid interest rates of less than 15 percent in March 2022, suggesting that interest rates are declining as credit to the real sector of the economy continues to increase.

Osita Nwanisobi, director corporate communications department, CBN, noted last year that the Emefiele-led CBN has introduced no less than 37 intervention programmes to boost the economy of the country.

Prior to his joining the CBN, Emefiele spent over 26 years in commercial banking culminating in his tenure as Group Managing Director and Chief Executive Officer of Zenith Bank PLC, one of Nigeria’s largest banks with over 7,000 staff, about US$3.2 billion in shareholders’ funds, and subsidiaries in Ghana, Sierra Leone, Gambia, South Africa, China, and the United Kingdom.