The Monetary Policy Committee (MPC) of Central Bank of Nigeria (CBN) on Tuesday asked the management of the bank to limit the access of deposit money banks to government securities.
This is as it retained the monetary policy rate (MPR), which is the benchmark used by banks to fix their interest rates at 13.5 per cent.
Reading the communique of the MPC meeting at a press briefing in Abuja, CBN Governor, Mr. Godwin Emefiele who is also the Chairman of the committee said “in view of the abundant opportunities that available to banks for unfettered access to government securities which tend to crowd out private sector lending, MPC called on management to provide a mechanism for limiting deposit money banks’ access to government securities so as to redirect banks’ lending focus to the private sector noting that this would spur the badly needed growth in the economy.
“According to our own regulation, there is a particular minimum percentage of government security instruments that banks must invest in order to remain liquid but we have observed that banks, rather than focusing on granting credit to the private sector, tend to direct their focus mainly on buying government securities.”
According to him, MPC has frowned at that situation and has directed the management of CBN to put policies and regulations in place that would restrict the banks from unlimited access to government securities. It is important and expedient that this committee gives the directive to management because this country badly needs growth.
“For us to achieve growth, those whose primary responsibility that it is to provide credit who act as intermediaries in providing credit and are the catalyst to credit must be seen to perform that responsibility.
“But rather than performing that responsibility to the private sector that is the engine of growth in the economy they have rather been directing their liquidity to other sectors of the economy.
“MPC has now given management the power to limit their appetite for just going for government securities rather than the private sector.
“Management will take this up and think of how to comply. We do know that banks have always expressed some resistance to creating of credit to the private sector given the past experience non-performing loans that will result from this.
“MPC asked CBN to think of administrative, regulatory and legal framework to be put in place to ensure that some of the credit risks associated with granting loans to the private sector that ultimately results in NPLs should be mitigated such that when banks decide to begin to lend to private sector, the probability that NPL will rise should be moderated.
“One of the inhibiting factors to growth is the fact that we have not been able to jumpstart the consumer credit and mortgage credit businesses in Nigeria. Management of the bank will think of regulations that would assist people or banks to ensure that consumer credit is improved.
“In different parts of the world, people buy things on credit which improves aggregate demand and when it increases demand that can meet the dormant supply what you find is it will catalyse the economy, productivity and grow the economy.
“We will have robust discussions with DMBs because they are important, they are an anchor to growth, and we will make them understand that they must play this role that is expected of them.”
The Governor also reported NPC to have welcomed the improvement in financial soundness indicators while also noting that although non-performing loans (NPLs) ratio moderated, it remained above the prudential benchmark.
Expatiating on NPLs Emefiele said prudential regulation stipulates that banks should have a maximum of five per cent NPLs.
“Right now, it is between 9 and 10 per cent on the average, which is a significant improvement over two years ago when it was about 17 per cent.”
After considering the necessary variable, MPC consequently decided to hold existing rates by a vote of 9 members out of 11 including MPR at 13.5 per cent; Asymmetry corridor of +200 and -500 basis point around MPR; cash reserve ratio (CRR) at 2.5 per cent and; liquidity ratio at 30 per cent.
Reiterating his earlier position on the country’s seemingly uncontrollable population growth, Emefiele declared “it is saddening that Nigeria would be the third largest populated country in the world by 2050 just behind China and India.
“It is not a good story but what it also means is that we have a lot of work to do to be able to feed and provide employment to the mass of people that will be created.”
And with the economy growing at 2.01 per cent in the first quarter of 2019 and poor flow of credit from the DMBs to the private sector, “NPC called on CBN management to urgently put in place modalities to promote consumer and mortgage lending in the economy noting that doing this will greatly and positively impact on the flow of credit and output growth.”
MPC also urged relevant authorities to strengthen efforts to address the security challenges and improve food production as well as encourage financial intermediating institutions to ensure that loans to the agricultural sector were channelled effectively to end users.