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CBN Maps Out Role For Private Sector In Nigeria’s Economy


By ensuring a level playing field in economic readiness, creating new frontiers for financial services and accelerating transitions to existing and new businesses, the Central Bank of Nigeria (CBN) is indeed, elevating the Nigerian economy to the platform of growth and sustainability.

The bank, under the Governorship of Godwin Emefiele, is doing this through broad support for entrepreneurs willing to take risks on new products and business models, better access to existing and new financial services needed to take innovations to scale, and carefully calibrated regulatory regime that balance the needs of society without dampening innovation or competition. T

o further prove his readiness to ensure that the Nigerian economy witness aggressive turnaround, Emefiele has said the Bank was certainly going to carry out a directive from the Monetary Policy Committee (MPC) to come up with regulatory framework that will ensure that commercial banks in the country grant credit access to the private sector, who Emefiele described as the engine room of development in every country. One of the ways is to diplomatically border the commercial banks’ appetite for government securities.

Not impressed by the flow of credit from the Deposit Money Banks (DMBs) to the private sector, the MPC had call on the CBN management to urgently put in place modalities to promote consumer and mortgage lending in the Nigerian economy, noting that doing this will greatly and positively impact on the flow of credit and ultimately result in output growth. CBN regulation provides for a particular minimum percentage of Treasury Bills or Treasury Security or government securities that a bank must invest in order to remain liquid.

But some of the banks, rather than even focusing on granting credit to the private sector, tend to direct their focus mainly on buying government securities, a situation the MPC fawned at and has directed the management of the central bank to put in place policies or regulations that will restrict the banks from having unlimited access to government securities. Like a soldier waiting for an order from his commander, Emefiele immediately announced that the management of the Central Bank was going to come out with new regulatory guidelines to restrict Deposit Money Banks in the country from having unlimited access to government Treasury Securities. He  said the decision was in response to a directive from the Monetary Policy Committee (MPC) on the Bank to urgently put in place modalities to promote consumers and mortgage lending in the Nigerian economy.

“It is important and expedient that the Committee gives this directive to CBN because this country seriously  needs growth. For us to achieve growth, those whose primary responsibility it is to provide credit, who act as intermediaries in providing credit and are catalysts to credit and growth in the economy must be seen to perform that responsibility. And that rather than perform that responsibility to the private sector that is the engine of growth to an economy, they will instead direct their liquidity to other sectors of the economy is what the MPC frowns at.

And has given management the power to think of what can be done to limit their appetite for government securities rather than directing credit to private sector of the economy. Management will certainly take this up and think of how to do that,” Emefiele said in his usual pro-business stance. One of the inhibiting factors to growth in Nigeria is the fact that the authorities have not been able to effectively jumpstart the consumer credit and the mortgage credit businesses or lending in Nigeria. Borrowed from that, Emefiele said 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 could begin in Nigeria.

“We are going to hold intensive discussions with the banks and make them understand that they must play this role,” he added. The CBN is mindful of the concerns of Banks that have always expressed resistance to granting credit to the private sector, given their past experiences of high rate of Non-Performing Loans that have resulted from such transactions.

The MPC has asked CBN to think about administrative, legal and regulatory framework to be put in place in order to ensure that some of the credit risks that are associated with granting loan to the private sector that ultimately result in Non-Performing Loans (NPLs) are mitigated such that when banks decide to increase lending to private sector, the probability that NPLs will rise is moderated.

The MPC also felt that the consumer credit and the Mortgage credit market must be catalyzed in Nigeria. The MPC also called for a close monitoring of the uptick in inflationary pressures in April 2019, driven largely by food shortages during the Easter season, the commencement of the planting season as well as persisting security challenges in some of the food producing regions of the country.

The Committee, urged the relevant authorities to strengthen efforts to address the security challenges and improve food production. It encouraged financial intermediating institutions to ensure that loans to the agricultural sector were channeled effectively to end users. For the CBN Governor, the directive to ensure credit access to the private sector came promptly. Addressing journalists in Abuja last Tuesday,

the CBN Governor, who will be continuing in office for a second five year term in office, said in the next phase of his administration, there will be a need to aggressively be thinking about how to reduce the level of unemployment and increase the level of employment in the country.

He acknowledged that there is a link 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 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.

When they do so, ultimately it reduces the level of insecurity in our country,” he said. The concerns of the monetary authority are understandable. Data on the domestic economy suggests some fragility in output growth during the second quarter of 2019 with improved outlook for the rest of the year. Accordingly, revised output projections indicate that the economy would grow by 2.1 per cent according to the International Monetary Fund (IMF), 2.2 per cent by the World Bank and 2.38 per cent by the CBN in 2019.

This outlook is hinged on the following key factors: the effective implementation of the Economic Recovery and Growth Plan (ERGP); supportive monetary policy; enhanced flow of credit to the real sector; sustained stability of the exchange rate; and improved fiscal buffers; amongst others. The Committee, thus, expects that monetary policy would focus on improving access to credit, reducing unemployment and stimulating economic growth. It goes without saying that economic performance benefits enormously from a safe and efficient financial system and a booming private sector.

As noted in its book – Advancing the Frontiers of Monetary Policy, the International Monetary Fund (IMF) observed that since the global financial crisis, central banks have used their public communications to raise the profile of the objective of financial stability. Financial conditions play an increasingly important role in the monetary policy process, because they contain powerful information about future economic conditions, particularly downside risks. In general, indices of financial conditions gauge how easily money and credit flow through the economy via financial markets by examining indicators such as borrowing cost, risk spreads, asset price volatility, exchange rates, inflation rates, and commodity prices.

Source: By Mark Itsibor

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