MPC worries over fragile economy growth

…Restricts banks from investing in FG Bonds, TBs

…Retains MPR at 13.5%, CRR 25%, Liquidity Ratio 30%

Mathew Dadiya and Joseph Inokotong, Abuja

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is worried over the fragile growth of the nation’s economy, just as it warned the Deposit Money Banks (DMBs) against investing in the Federal Government Bonds (FG Bonds) and Treasury Bills (TBs) instead of lending to the private sector.

This, the MPC said, was part of its effort to trigger growth in the economy, lower inflation pressure, given the recent data of April inflation (11.37% as against March figure of 11.25%).

Speaking to Finance Correspondents on Tuesday at the end of the two-day meeting, the Central Bank of Nigeria Governor, Mr. Godwin Emefiele, who presided over the bi-monthly meeting in Abuja said that government needs to come up with a percentage cut on securities and Treasury Bills (TBs) banks can invest in.

According to the CBN governor, the decision is to achieve a trickledown effect on the economy and the real sector in particular, adding that the MPC has given the apex bank management the directive to come up with a policy restraining Deposit Money Banks (DMBs) from investing the fund in government’s securities and the Treasury Bills.

Emefiele said the banks rather than advancing credits to the private sector or real sector of the economy, they direct the funds to purchase securities.

This is even as the MPC voted to hold all parameters of the monetary indices – meaning that the retention of anchor lending rate- (Monetary Policy Rate) 13.5 per cent as adopted in March, retain the asymmetric corridor of +200/-500 around the MPR; CRR at 22.5 per cent and liquidity ratio at 30 per cent.

Emefiele said that the decision of the MPC to retain anchor lending rate (Monetary Policy Rate) 13.5 as adopted in March, across asymmetric corridor of +200/-500 around the MPR; CRR at 22.5 per cent and liquidity ratio at 30 per cent, was to shield the economy from inflationary pressure.

He explained that given the recent uptick in April inflation (11.37% as against March figure of 11.25%), majority of MPC members voted for retention.

Shedding lights on the measure to curtail 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 an 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 security.

“The monetary policy committee has fawned 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 we, the MPC give this directive to the management of the central bank because this country badly needs growth.

“For us to achieve growth, those whose primary responsibilities it is to provide credit, who act as intermediaries in providing credit and are accorded as the catalyst to the economy must be seen to perform that responsibility.

And that they (Money Deposit Bank’s) would rather than performing that responsibility to the private sector that is the engine 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 given 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 the private sector of the economy”.

The governor added that it was to the knowledge of CBN that banks expressed concern in respect to the volume of Non-Performing Loans (NPLs) in their books, a major concern cited by banks when it comes to lending credit to the private sector. He said step would be taken by CBN to address NPLs.

“Management would certainly take this up, will think of how to do that. 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 or increasingly that the probability that NPLs would rise should be moderated.

“The MPC also felt that consumer credit and the mortgage market must be catalyzed in Nigeria.

That one of the inhibiting factors to growth is the fact that we have not been able to effectively jump-start the consumer credit and mortgage credit businesses in Nigeria or lending in Nigeria.

And the management of the bank will think of how to put in place regulations that will assist people or banks in ensuring that consumer credit improved again in Nigeria,” said CBN governor.

“In different parts of the world, people go to the shops and should be able to buy things in credit.

When you buy those things on credit, what it does is that when you have liquidity- say you have N5 and you want to buy something for N10, what it does it improve aggregate demand or it increased demand that can meet the dormant supply because when you have dormant supply what you will find is that it will catalyzed the economy,

it will also catalyze productivity and grow the economy and then we can begin to see the GDP begins to attain the kind of liquidity level that Nigeria has always been desiring.

“That we are going to take up given that the MPC has given the management that mandate, and we are going to hold very informed and strategic decision and engagement with Deposit Money Banks because they are very important, they are an anchor to growth and we will make them understand that they must play that role that is expected of them.

Emefiele while thanking Nigerians, the executive arm of government, legislative and the media for support in his tenure renewal for second time of five years as CBN governor, said the improvement in macroeconomic will be given priority in the second phase of his tenure.

“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, the latter 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 macroeconomic 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 macroeconomic 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 the next phase of his administration as CBN governor, he said: “In this next phase, there will be a need for us to aggressively be thinking about how do we reduce the level of unemployment, 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. 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 the 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 to go to the 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.

“A lot of work needs to be done; we need to consolidate on the growth that we have right now that fragile. The economy growing at 2 percent is suboptimal if we consider that this country population grows at an average of over 2.7 per cent per annum.

And of the fact that you might have heard me saying it is saddening that we will be the third largest population in the world in 2050, even higher than America but following India and China.

It’s 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 food to be able to employ the mass of people that will be created as well “, Emefiele said.

On how bad the NPLs are , Emefiele said: “We’ll, if you recall, the prudential is that banks must not have more than five per cent in NPL but I must say that at this time it’s about 9-10 percent on the average which is a significant improvement from where it was a year or two ago.

About a year or two ago it was close to 15 percent and moderated to 10 percent and we say it’s a substantial and significant and encouraging improvement in a level of NPL.

And I do think that with the steps that would be taken by the central bank to support the banks through administrative, legal and regulatory framework, certainly we would see to it that NPLs are brought down so that DMBs are encouraged to go back and begin to lend money more aggressively to those sectors that they considered to be risky.”

On oil benchmark, he said: “The oil benchmark is about $60 per barrel that has been budgeted for at 2.3 barrels per day.

Now that price is almost at 70, what we are saying is that there is no need to begin to say let us spend if we make more money and so increase the budget benchmark maybe from $60pb to $69pb because you believe that price is good.

What that does, for instance, the buffer between $72 or $74 that it is right now and the $60 budgeted, if you realised the money, save it and build a buffer for a rainy day when it does happened.”