Almost three months after the Central Bank of Nigeria (CBN) cut its benchmark interest rate by 50 bps to 13.5 per cent, in March 2019, lending to the private sector continued to decline with attendant high cost.
This was the position of members of the Monetary Policy Committee (MPC) who participated in the last meeting held last month, as released on Tuesday by the CBN.
Total banking industry credits declined by 0.58 percent between April 2018 and April 2019, a trend that has persisted since 2017.
“This is a worrisome development given the slow and fragile economic activity in the country,” said Godwin Emefiele, governor of the CBN in his personal statement.
Maximum and prime lending rates rose in April, while rates on consolidated demand, savings and terms deposit declined, further worsening the gap between the average lending and deposit rates.
“It is also disappointing that the decrease in the MPR in March has not impacted in expected way on rates at the retail end of the credit market, although rates on intermediate financial assets decreased”, Adeola Festus Adenikinju said in his personal statement.
He said coordination between monetary policy and fiscal policy is important to ensure that current policy interventions have the desired impacts on the economy. He argued that fiscal deficit was high and worrisome, while government debt was rising in the face of underperforming revenue, and security is a major challenge, posing significant threat to investment and economic growth.
However, industry capital adequacy ratio (CAR) increased marginally to 15.60 per cent in April 2019 from 15.14 per cent in February 2019, while Non-Performing Loans (NPLs) decreased to 10.95 per cent from 11.28 per cent. However, the NPLs ratio is still higher than the prudential limit of 5.0 per cent. Other vulnerabilities in the industry include high concentration and contagion risks as well as significant FX exposure.
These conditions have tended to increase averseness to risk in the industry, leading to some form of asset substitution. It is especially worrisome that credit to the private sector is declining and this needs to be halted and possibly reversed to strengthen economic activity and job creation.
“In arriving at a decision at the May MPC meeting, I reckoned that the effects of the downward adjustment of the MPR in March had not fully manifested and that downside risks to growth were quite strong”, Edward Lametek, deputy governor said.
Although, interbank rates slightly eased in response to the adjustment in the policy rate, retail rates remained sticky downwards. More importantly, credit to the real economy declined.
From March 2019 and May 2019, a survey of central banks revealed that only Nigeria reduced her policy rates, while others held their policy rate constant.
These included the Fed, Bank of England, ECB, Reserve Bank of India, Bank of Japan and Peoples Bank of China, all of which retained their policy rate in response to the prevailing uncertainties in the global economy.
Balami, Dahiru Hassan explained in his personal statement that the reduction in the NPLs was driven by write-offs and recoveries. There was also increase in provisioning by banks for NPLs in the review period.
Similarly, the industry liquidity ratio (LR) rose further from 51.05 percent in February, 2019 to 52.61 percent in April 2019.
By HOPE MOSES-ASHIKE