The Central Bank of Nigeria (CBN) said on Monday that it would encourage banks to grant more forbearance to their customers up to 60-65 percent.
The move is to assist businesses that have been adversely affected by the impact of Covid-19 pandemic to return back to life.
Godwin Emefiele, governor of the CBN, who disclosed this at the end of the Monetary Policy Committee (MPC) meeting, said 22 out of 27 banks have come to the CBN to restructure loans of about 35,640 of their customers amounting to only about N7.8 trillion, which constitutes about 41 percent of the total industry loan at N18.9 trillion.
“We still see this as a bit low,” he said.
The MPC kept the benchmark interest rate unchanged at 12.5 percent in consideration of rising inflation rate and weak growth.
The committee, by vote of 10 members in attendance, voted to retain the Monetary Policy Rate (MPR) at 12.5 percent; the asymmetric corridor of +200/-500 basis points around the MPR; the CRR at 27.5 percent; and the Liquidity Ratio at 30 percent.
The apex bank on March 16, 2020, granted 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 oil & gas, agriculture, and manufacturing.
“We are going to encourage the banks to continue to extend forbearance to businesses until we see forbearance level rising to about 60 percent 65 percent, then we will get a bit comfortable that we have been able to assist business to a large extent coming back to life,” Emefiele said.
The MPC noted that the earlier downward adjustment of the MPR by 100 basis points to 12.5 percent to signal the loosening monetary policy stance is yielding positive impact as credit growth increased significantly in the economy.
Loans and advances advanced into the economy increased by N3.3 trillion from N15.6 trillion in June 2019 to N18.9 trillion in June 2020 as a result of the CBN Loan to Deposit Ratio (LDR) policy.
The loans were granted to some of the productive sectors as follows: N815 billion to manufacturing; N615 billion to retail and consumer loan sector; agric, forestry and fishery got N255 billion; general commerce N221 billion; ICT N208 billion, among a few others.
“What we are saying is that in spite of this large numbers granted in a year, and the prudential ratio still looking so strong, is an indication that the economy and banking system remain strong and resilient and able to support the economic development of Nigeria,” Emefiele said.
Reacting to the development, Bismarck Rewane, chief executive officer of Financial Derivatives Company, said, “When you take it on the context of a N150 trillion economy, the impact of N18.9 trillion is not going to be impactful, so there is work to be done.”
Speaking further, the CBN governor said provisional data on key domestic macroeconomic variables indicate that the Nigerian economy may record negative quarterly GDP growth in the 2nd quarter of 2020, but there is cautious optimism that the year may end in marginal negative territory, with strong recovery prospects in 2021.
Uche Uwaleke, a professor of capital market at the Nasarawa State University, Keffi, said he was not surprised at the MPC decision, arguing that it was unlikely to cut monetary policy rate when inflation rate is rising.
Nigeria’s inflation rose to 12.56 percent in June 2020 from 12.4 percent in May 2020, according to data from the National Bureau of Statistics (NBS).
“The monetary policy tools have been stretched to the limits. The MPC can only advise the CBN to sustain and ensure the effective implementation of heterodox measures already introduced to strengthen the asset quality and financial soundness of the banking sector including the recent Global Standing Instruction which will facilitate repayment of loans by banks’ customers leading to a reduction in non-performing loans and improvement in liquidity,” Uwaleke said.
“In order to support economic growth in a period of COVID-19, through increased credit to the real sectors, the MPC will also advise the CBN to maintain the Loan-to-Deposit Ratio of 65 percent for DMBs,” he said.
By way of direct impact, Uwaleke said, the CBN should also consider accommodating capital market operators in its COVID-19 intervention schemes.
Ayodele Akinwunmi, relationship manager, corporate banking, FSDH Merchant Bank Limited, noted that there is limited option as to how monetary policy can stimulate growth under the current situation.
On foreign exchange (FX), Chamberlain Perterside, CEO, Xcellon Capital Advisors, said, “For those who advocate to weaken the naira a bit more to attract foreign investment, they should hold their breath. Let’s take a more gradual and systematic approach to weaken the naira.
