Barely one month after he was confirmed for a second term in office as Central Bank Governor, Mr. Godwin Emefiele, unveiled its five- year policy thrust to make a difference in the economy. The immediate action of the CBN was to mandate Deposit Money Banks (DMBs) to make funding available to the real sector to flourish and ultimately grow the economy. Bamidele Famoofo reports
Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, wants to ramp up the growth of the Nigerian economy. His strategy is to bring about that desired growth for the economy through deliberate investment in the real sector which is the growth engine of the economy.
The latest circular from CBN to all deposit money banks (DMBs) otherwise known as commercial banks is evidence that Emefiele is committed to achieving his ambition to make the largest economy in Africa come out of its crawling state.
The letter tagged: “Regulatory Measures to Improve Lending to the Real Sector of the Nigerian Economy”, mandates all commercial banks operating in the country to make cash available for businesses increase their capacity and to be able to create more jobs.
The CBN Governor through the Director of Banking Supervision, Ahmad Abdullahi, instructed banks to make available as loan to the real sector, at least 60 per cent of the cash which they collect from depositors effective from September 30, 2019.
“All DMBs are hereby required to maintain a minimum Loan to Deposit Ratio (LDR) of 60 per cent by September 30, 2019. This ratio shall be subject to quarterly review,” the letter stated.
For the purpose of implementation and to be able to track compliance, the CBN said it shall provide a framework for classification of enterprises/businesses that fall under these categories.
“Failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement equal to 50 per cent of the lending shortfall of the target LDR. The CBN shall continue to review development in the market with a view to facilitating greater investment in the real sector of the Nigerian economy,” CBN said.
Besides, to encourage SMEs, retail, mortgage and consumer lending in the real sector, CBN said these sectors shall be assigned a weight of 150 per cent in computing the LDR for this purpose.
Financial experts said the real sector of the economy will have at least N1.5 trillion additional cash to borrow from if all the banks comply with the new policy.
Head of Research at FSDH, Mr. Ayo Akinwunmi, said the policy would allow for more deposits to be released to customers.
He, however, noted that some of the commercial banks may have to sell some of their short-term yielding investments in the money market to be able to free more cash for lending to the real sector.
Akinwunmi warned that except the challenges of lending are addressed, the policy of compulsory lending to the economy might aggravate the issue of non-performing loans which most commercial bank had struggled with over time.
An economist and Lagos-based Financial Consultant, Dr. Boniface Chizea, said the new approach will enable the CBN to keep fidelity to its development banking mandate. He noted that the policy also aligned with the need for the monetary authorities to positively impact on the unacceptable high unemployment rate of over 20 per cent with its nefarious social consequences.
“As a well-articulated policy, it embodies carrots and sticks. The loan/deposit ratio at 60 per cent prudentially allows the banks to commit a larger part of their deposit base; which is 60 per cent to lending. Therefore the message to DMBs is to adopt a more aggressive posture in booking credit. It at once sends a clear message that reliance on fixed income investments should be deemphasised going forward,” he said.
Chizea said it was in the best interest of banks to read the handwriting on the wall for them to slow down their investments in short-term yielding financial instruments as they would be restricted on the extent of exposure to fixed income securities.
“We give kudos to the Central Bank of Nigeria for putting its mouth where its word is,” he said. But Chizea expressed reservation over compliance on the side of banks. “The challenge will be to ensure that the new guidelines are observed, beating the shenanigans the banks are known as being adept at mounting.”
Emefiele’s Agenda
The CBN Governor has said his vision for the bank over the next five years is primarily driven by the need to support continued growth and development of the Nigerian economy.
In his five-year policy thrust for a second term in office as the CBN governor, he said: “Our vision would be to ensure the Central Bank of Nigeria is more people focused, as its policies and programmes would be geared towards supporting job creation, reducing the high level of Treasury-Bill rates, improving access to credit for MSMEs, deepening our intervention programme in the Agricultural sector, building a robust payment system infrastructure that will help drive inclusion, in addition to key macroeconomic concerns such as exchange rate stability, financial system stability and maintaining a strong external reserve.”
Previous Interventions
Just like it did to farmers under its Anchor Borrowers’ Programme (ABP), where rice farmers got cheap capital to boost their production capacities, leading to Nigeria becoming one of world’s largest producers of rice, the CBN recently launched a financing programme for the creative industry in Africa’s largest economy to enhance productivity and wealth creation.
The creative industry is adjudged one of the fastest growing in Nigeria. Statistics showed that Nigeria’s creative industry accounts for 2.3 per cent, approximately N239 billion of the nation’s GDP in 2016. It has, however, grown more than double the previous figures and continues to pose as the go-to sector to massively reduce the unemployment rate as well as create a more robust economy.
The Central Bank in collaboration with the Bankers’ Committee as part of efforts to boost job creation in Nigeria, particularly among the youth developed a Creative Industry Finance Initiative (CIFI).
The CBN disclosed that four key areas in the creative industry are targeted for financing under the scheme. The four target areas are fashion, information technology, movie production and music distribution. Software Engineering students can also access loan from the scheme for use in their creative ventures.
According to CBN, prospective beneficiaries are only required to prepare their business plan or statement on how much they want for their business and approach their bank for the facility.
“You can get a loan of up to N3 million for software engineering student, N30 million for movie production business, N500 million for movie distribution business,” the CBN announced.
The facility covers for rental/service fees for fashion and information technology business and training fees, equipment fees, and rental/service fees for music business.
The CBN added: “Go to any bank of your choice to access the fund. Tell your bank how much you need. Your bank will discuss your request and provide you the money.”
The maximum interest rate of nine percent per annum (all charges inclusive) is applicable to all loans with a period for the repayment of the loan ranging from three to 10 years, depending on the segment of the business.
For software engineering student loan, it is a maximum of three years to repay a loan while it takes up to 10 years for people in movie production and distribution and also fashion, information technology and music.
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