CBN bemoans slow banks’ lending to the private sector

…Lifts Forex market with $210m fresh injections

Motolani Oseni

The Monetary Policy Members (MPC) of the Central Bank of Nigeria (CBN) haS condemned declining banks’ credit to the private sector, as government borrowing continues to gain momentum. This is even as the apex bank on Tuesday lifted the inter-bank foreign exchange market with a fresh injection of $210 million. The committee members at the meeting held last month also expressed concerns over the resurgence of moderate inflationary pressure and possible threats to accretion to external reserves due to softening crude oil prices. The CBN Governor, Mr. Godwin Emefiele, in a statement obtained from the apex bank official website on Tuesday, said the private sector credit (PSC) of about two per cent was significantly below the target of 12.4 per cent. “I note the unsatisfactory pace of PSC and continue to emphasise the importance of enhanced credit flows to strategic private sector ventures through an effective collaboration of all stakeholders,” Emefiele stated. He acknowledged the risk aversion of banks to supposedly high-risk real sector ventures, stressing that improvements in banks Non-Performing Loan (NPL) position and continuing efforts at de-risking the target activities which are steps in the right direction. His words: “We expect that this could begin to bolster domestic investment, household demand, and aggregate productivity while accelerating economic diversification, and ensuring strong and inclusive growth.” The Deputy Governor, Economic Policy, CBN, Dr. Okwu Nnanna, in its statement said the financial system remained resilient, despite concerns about NPLs in the banking sector. He noted that sustained regulatory oversight is reducing the NPLs, and the relative rebound in the oil sector would further strengthen financial stability. He posited that credit to the core private sector has remained sticky upward, as government borrowing continued to gain momentum. Another member of the committee, Robert Asogwa, in a statement, said: “On the banking system, CBN staff report indicates a modest improvement of the indicators as compared to the situation at the MPC meeting of November 2018. “Both the Capital Adequacy Ratio and the NPLs Ratio showed positive signs in December 2018 and partly attributed to some prompt corrective actions taken by the Central Bank. “Of key concern, however, is the trend in total bank credit which reduced in November 2018 and further in December but surprisingly total bank assets increased between November 2018 and December. “The inverse movement between bank total assets and bank total credit at the same time may simply be as a result of banks’ excessive interest in securitization and other non-traditional banking activities rather than real sector lending. “The negative implications of this credit reluctance by banks in a period of economic recovery have been discussed severally and remain significantly limiting for the economy.” In addition, Prof. Festus Adenikinju noted that aggregate credit expansion to the real economy continues to pose serious challenges. According to him, Net credit growth to the private sector is lower than the provisional benchmark for 2018. “The high-interest rate spread and the high lending rates are challenges that require new and innovative approaches. “The proposed National Microfinance Bank; strengthening of the existing Micro Finance Banks, and other initiatives by the CBN to promote financial inclusion and access to credit by those in the rural areas, semi/urban; and even the poor areas in the cities across the country at affordable interest rates would boost real sector activities at the MSMEs level,” he stated. The Committee had acknowledged the strategic role of the private sector in economic growth and remained concerned over the slow growth in credit to the private sector through last year, while noting the sudden increase at end December 2018. The MPC commended the initiative of the Bankers Committee in addressing the phenomenon of low credit to the small and medium scale enterprises through partnering with the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) to establish a national Microfinance bank with branches in all States and Local Government areas of the Federation to provide low interest rate lending to small scale businesses. A further initiative by NIRSAL with the CBN to de-risk lending to small scale enterprises is also being fine-tuned. The committee had voted to retain its rates.