Nigeria’s central bank Monday unveiled a six-point response to the impact of the Coronavirus outbreak as apex banks around the world mounted concerted efforts to keep the global economy healthy.
Some of the new policy thrusts of the CBN include granting all commercial lenders 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 in the oil and gas, agriculture, and manufacturing sectors.
The CBN said it would work closely with the banks to ensure that the use of forbearance is “targeted, transparent and temporary, whilst maintaining individual deposit money banks or DMB’s financial strength and overall financial stability of the system.”
The CBN also established a N50-billion facility through the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) microfinance bank for households and small- and medium-sized enterprises (SMEs) that have been particularly hard hit by Covid-19, including but not limited to hoteliers, airline service providers, health care merchants, among others.
These are part of the six immediate policy measures the CBN announced on Monday to help combat the impact of the Covid-19 scourge on the economy.
The new policy measures come ahead of next week’s Monetary Policy Committee meeting where, according to CBN governor, Godwin Emefiele, there would be decisions on whether to cut benchmark rates or not.
But the CBN however slashed interest rates on all its applicable intervention facilities from 9 to 5 percent per annum for one year effective March 1, 2020.
Announcing these policy measures at an emergency press conference on Monday, Emefiele said the ravaging coronavirus scourge had given impetus for the CBN to provide support for affected households, businesses, regulated financial institutions, and other stakeholders in order to cushion the adverse economic impacts of the Covid-19 pandemic.
“All CBN intervention facilities are hereby granted a further moratorium of one year on all principal repayments, effective March 1, 2020. This means that any intervention loan currently under moratorium is hereby granted additional period of one year,” Emefiele said.
“Accordingly, participating financial institutions are hereby directed to provide new amortization schedules for all beneficiaries,” he directed.
The Covid-19 pandemic has already led to unprecedented disruptions in global supply chains, sharp reduction in crude oil prices, turmoil in global stock and financial markets, widespread cancellations of entertainment and business events, lockdown of large movements of persons in many countries, and intercontinental travel restrictions across critical air routes in the world.
These outcomes have had serious adverse implications for key sectors, including but not limited to oil and gas, airlines, manufacturing, trade and consumer markets.
The Federal Reserve also swept into action in an effort to save the US economy from the fallout of the coronavirus, slashing its benchmark interest rate by a full percentage point to near zero and promising to boost its bond holdings by at least $700 billion, comprising of $500 billion of Treasury securities and at least $200 billion of mortgage backed securities (MBS).
Fed chairman Jerome Powell told a press briefing that the virus’ disruption to lives and businesses meant second quarter growth would probably be weak and it was hard to know how long the pain would last.
“We do know that the virus will run its course and that the US economy will resume a normal level of activity. In the meantime, the Fed will continue to use our tools to support the flow of credit,” Powell said.
The Fed pulled out some of the biggest weapons in its arsenal by cutting its key rate to 0.25 percent, matching the record low level it hit during the 2008 financial crisis and where it was held until December 2015.
The US central bank also announced several other actions, including letting banks borrow from the discount window for as long as 90 days and reducing reserve requirement ratios to zero percent.
In addition, it united with five other central banks to ensure dollars are available around the world via swap lines. Powell said he did not think negative rates, which have been used in Europe and Japan, would be appropriate policy in the US.
As the fallout spreads across the economy, the risk of a recession is mounting. Goldman Sachs cut its GDP forecasts. It’s now predicting zero growth in the first quarter and a 5 percent contraction in the second for the American economy.
Africa’s second largest economy, South Africa declared a national state of disaster over the coronavirus outbreak and announced the continent’s most drastic measures yet to curb its spread. Stocks slumped to a six-year low, bonds fell and the rand weakened.
The government is imposing travel bans on some nationals, shutting schools and banning public gatherings of more than 100 people, President Cyril Ramaphosa said in a televised address to the nation, after an emergency cabinet meeting. The state is also finalizing a package of measures to minimise the effect of the global pandemic on the economy, he said.
“We have decided to take urgent and drastic measures to manage the disease, protect the people of our country and to reduce the impact of the virus on our society and on our economy,” he said. “There can be no half measures.”
South Africa, which reported its first confirmed Covid-19 infection on March 5, now has 61 cases of the disease. The bulk of those infected had travelled to other countries previously hit by the disease. Health authorities expect it is only a matter of time before local transmissions increase, and aim to minimize and slow those as much as possible to alleviate the impact on an already overburdened public health system.
Nationals from the US, UK, China, Italy, Germany, South Korea, Iran and Spain will be denied visas, while any foreigners who have visited a high-risk country in the past 20 days will also be refused entry, Ramaphosa said. Travellers from medium-risk countries such as Portugal, Hong Kong and Singapore will be required to undergo high-intensity screening.
To meet potential increase in demand for healthcare services and products, the CBN has also opened for its intervention facilities, loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to Hospital and Healthcare practitioners who intend to expand/build the Health facilities to first class centres.
Emefiele explained that the CBN would also consider additional incentives to encourage extension of longer tenured credit facilities. Banks are encouraged to continue to build capital buffers in order to improve resilience of the sector.
“The CBN stands ready to provide liquidity backstops as and when required in view of its role as banker to the Federal Government and lender of last resort. The CBN shall continue to monitor developments and will issue further updates as may be appropriate,” the CBN governor further assured.
Central bankers and investors have pressed governments to do more to support their economies, given monetary ammunition is running low and because fiscal policy can be targeted at corners of an economy that need it most.
Onyinye Nwachukwu, Abuja
