The Central Bank of Nigeria (CBN) has finalised plans to roll out legal and administrative framework that will cut or put a ceiling on the percentage of government’s securities – bonds and Treasury Bills– banks would be allowed to invest in.
CBN governor, Mr. Goodwin Emefiele, dropped this hint yesterday in Abuja, while briefing journalists on the outcome of Monetary Policy Committee (MPC) meeting where members resolved to adopt ‘a hold’ position in all the parameters of MPC indices to shield economy from inflationary pressure.
The anchor lending rate (Monetary Policy Rate) was left unchanged at 13.5 per cent as adopted in March, across asymmetric corridor of +200/-500 around the MPR; Cash Reserve Ration (CRR) at 22.5 per cent and liquidity ratio at 30 per cent.
Emefiele said that given the recent uptick in April inflation (11.37% as against March figure of 11.25%), majority of MPC members voted for retention of the rates.
Specifically, the CBN governor expressed strong exception to the reluctance by banks to advance credit lending to private sector/real sector of economy, thereby denying real sector the required funds.
He accused deposit banks of channelling funds in their vaults to buying government’s securities.
“In view of the abundant opportunities available to banks for unfettered access to government securities, which tends to crowd out private sector lending, the Committee called on the Bank to provide a mechanism for limiting DMBs access to government securities so as to redirect bank’s lending focus to the private sector, noting that this would spur the much needed growth in the economy. It called on the government to use all machinery at its disposal to increase tax revenue to enable the government fund its budget adequately,” he said.
New Telegraph’s analysis of the Q1 2019 results released by three banks – Access Bank, Zenith Bank and Guaranty Trust Bank – recently, for instance, shows that their total investment securities for the period increased to N2.80 trillion from N2.54 trillion in the first quarter of 2018.
Shedding lights on measure to curtain banks’ restriction on excessive investments in bonds, TBs, Emefiele said: “On MPC warning to the banks against Federal Government Securities, the truth is that according to our own regulations, there is a particular minimum percentage of treasury bills or government securities that the banks must invest in order to remain liquid. But again, we have observed, and unfortunate too and increasingly so, that the banks rather than focusing on granting credit to the private sector, they tend to direct their focus to mainly in buying government securities.”
He said that the MPC has frowned at that, and has directed the management of the Central Bank to put in place policies or regulations that will restrict the banks from unlimited access to government securities.
“It is important and expedient that the MPC gives this directive to the management of the Central Bank because this country badly needs growth,” he said. “For us to achieve growth, those whose primary responsibilities it is to provide credit, who act as intermediaries in providing credit and are accord as the catalyst to the economy must be seen to perform that responsibility.
“And that they (Money Deposit Banks) would rather than performing that responsibility to the private sector who are the engine of growth of an economy, they would be directing their liquidity to other sectors of the economy. “This is what the MPC frowns at and, therefore, giving the management of Central Bank the power to limit their propensity or their appetite for just going for government securities rather than directing credit to private sector of the economy.”
Besides, the governor said that the CBN is aware that banks expressed concern in respect to the volume of Non-Performing Loans (NPLs) in their books, which they hinged on lending credit to the private sector.
He said step would be taken by CBN to address NPLs.
“Management would certainly take this up, we will think of how to do that,” he said. “We do know that banks (and this is related to the issue of NPL as well), have always expressed some resistance to increasing credit ratio to the private sector, given the bad experience about NPL that resulted from this.
“Yet the MPC themselves have also directed the management of the CBN that we should think about administrative legal and regulatory framework to be put in place to ensure that some of the credit risks that are associated with granting loans to the private sector that ultimately result in NPLs should be mitigated such that when banks decide to begin to lend to private sector, the probability that NPLs would rise should be moderated.”
Emefiele, who this month became the first Nigerian Central Bank governor since the return to democracy in 1999 to be given a second term, said the apex bank predicted that growth this year would come in at 2.38 per cent.
Nigeria emerged from its first recession in 25 years in 2017. Higher oil prices and recent debt sales have helped it accrue billions of dollars in foreign reserves.
But growth remains fragile and inflation edged up in April to 11.37 per cent from 11.25 per cent a month earlier.
Emefiele, while thanking Nigerians, executive arm of government, legislative and the media for support in his tenure renewal for second term of five years as CBN governor, said improvement in macroeconomic will be given priority in second phase of his tenure.
He said: “I think it is very important that I use this opportunity to thank Nigerians, particularly the members of the press for their support in the last four or five years. “Your support has been immeasurable. If you recall that the later part of 2015 into 2016, and 2017 were very difficult for the Nigerian economy and, by extension, the Monetary Policy authorities.
“At this time, we’ve seen what we can call a relative improvement in the macro economic variables in Nigeria; exchange rates being stable, reserves looking good and inflation moderating downward. But it is also important for me to say that there are still challenges ahead.
“If we consider that notwithstanding the improvements in the macro economic variables that inflation still has its own pressures arising from issues bordering on prices and supply shortages for food; issues bordering on unemployment, and the need for us to think on how to diversify our economy, I will say the challenges ahead are still enormous, but we would need your support.”
For next phase of his administration as CBN governor, Emefiele said there will be a need for the apex bank to aggressively be thinking about how to reduce the level of unemployment and increase the level of employment in the country.
“I must confess that, yes, there is a relationship between employment level, improved economy and security in the country,” he confessed. “We all have to work together. Those who are making life difficult for people to go to their farms, to be able to produce or conduct their farming activities; we use this opportunity to appeal to them to please allow our farmers, particularly in the food producing belt of the country who are affected, to allow these farmers go to farm.
“When people go to farm, they get employed and make food available, feed their families and employ other people. And when they do so, ultimately, it reduces the level of insecurity in our country.”
Moreover, he said a lot of work needs to be done. “We need to consolidate on the growth that we have right now that is fragile. The economy growing at 2 per cent is suboptimal if we consider that this country’s population grows at an average of over 2.7 per cent per annum.”
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