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DBN has $1.3bn for MSMEs: Here is how you can access it

The Development Bank of Nigeria (DBN) is a wholesale development financial institution (DFI) set up to alleviate the financing need of micro, small and medium scale entrepreneurs (MSMEs).

As a development bank, it was established to fulfil three mandates which are all targeted towards scaling up SMEs. The first, being the core of its mandates, is providing wholesale lending funds to financial institutions to on-lend to MSMEs.

The second is to provide a partial guarantee to financial institutions so as to encourage them to be able to provide accessible credit facilities to MSMEs, while the third is on capacity building, by rendering technical assistance to financial institutions to empower MSMEs.

Since inception in 2017, the bank through other financial institutions has so far extended N70 billion to about 50,000 MSMEs, according to a statement by Shehu Yahaya, chairman, board of directors for the bank.

The amount according to him, would go a long way in solving the biggest challenge for the over 41.5 million MSMEs in the country that have been starved of funds in time past.

Even though the development bank has been pushing out funds into the sector, many MSMEs are still left in the dark on how the bank operates and possible ways of accessing loans from the development banking institution.

How DBN operates

Unlike other financial institutions like the Bank of Agriculture (BOA), Bank of Industry (BOI), and NEXIM, the Development Bank of Nigeria does not lend directly to borrowers. Instead, it works with other financial institutions including Deposit Money Banks (DMBs) and micro finance banks to disburse to end borrowers.

Furthermore, unlike other financial institutions that focus on a particular sector of the economy, the DBN loans cut across all sectors of the economy.

What this implies in that MSMEs, irrespective of the sectors they play, can have access to DBN loans through its indirect financial institutions. You can access it in many of the banks in the country. Ask your bank about DBN loans and they may be helpful. The processes are usually clear.

The DBN collaborates with other financial institutions registered under its network to provide funding to MSMEs.

According to Tony Okpanachi, managing director of the bank, the DBN is currently working with 29 participatory financial institutions, cutting across commercial banks and microfinance institutions. Of these, 10 are commercial banks while the rest are micro finance banks.

Okpanachi noted that the bank plans to on-board as many financial institutions as long as they meet its eligibility criteria.

What does it take to be a financial institution?

According to the DBN, before a financial institution can be on-boarded, it must have been profitable in the last two years of applying.

After that, the prudential ratios of these banks are looked into. By prudential ratio, the bank means looking at the non-performing loans of these banks and by appraising how strong they are in the area of lending to the MSMEs. “We do not want to take a financial institution that is not interested in loaning to the MSMEs,” Okpanachi told BusinessDay.

He explained that the bank, from time to time, carries out monitoring and evaluation to ensure that these loans that the financial institutions have taken are used for the right purpose and the impact is felt.

What is the maximum amount DBN can lend?

According to the bank, the maximum amount of money it can lend to players in the micro segment is N10 million, while those in the small category is N150 million. Those in the medium corporates business can get as much as N600 million.

Okpanachi explained that by the time these businesses are growing to the point that the bank sees they can stand on their own and can get access to bigger funding, they move out from that circle.

What is the loan size of DBN?

In terms of the size of funds available to the bank in dollar terms, the bank has about $1.3 billion, made up of debt and equity. The shareholders of the bank who have provided equity include the federal government of Nigeria, who is the majority shareholder, the African Development Bank (ADB) and the European Investment Bank (EIB), including the Nigerian Soviet Investment Authority (NISA).

In terms of regulatory capital, the bank has about N100 billion. In terms of debt capital, it has the World Bank, African Development Bank, KSW of Germany and the French Development Agency (FDA) as debt providers.

Source: businessdayng

Dubai launches new initiative to open up property investment market

Real Estate Investment Opportunities initiative aims to attract ‘a larger segment of investors, both inside and outside the UAE’

Dubai Land Department (DLD) on Tuesday announced the launch of a new initiative which aims to attract a wider range of real estate investors to the emirate.

Under the Real Estate Investment Opportunities (REIOs) initiative, several investment products will be launched including collective real estate investment funds, partial title deeds procedures to register units owned by a number of partners, a lease-to-own system and investment portfolio applications.

A law is currently being drafted for real estate investment portfolios that is still under accreditation and review by the concerned parties, DLD said in a statement.

The launch comes as Dubai witnessed an 8 percent increase in real estate transactions during the first quarter of 2019 to AED119 billion compared to the year-earlier period.

DLD added that the number of active investors reached 2,800 during the quarter with a “large number of new investors” entering the Dubai real estate market for the first time.

Sultan Butti bin Mejren, director general of DLD, said: “We are proud to launch a new investment package that enhances the attractiveness of Dubai’s real estate environment, reaching a wider horizon of global leadership through which we will formulate new visions, especially with Expo 2020 around the corner.

“Unveiling REIOs reflects the positive impact of innovative ideas in the real estate sector.”

A special office has been approved at DLD to facilitate and unify all registration and follow-up procedures for this initiative, he added in a statement.

DLD said it will also approve a set of special privileges relating to real estate registration and its terms, and a special electronic contact website will be established.

Marwan bin Ghalita, CEO of Real Estate Regulatory Agency (RERA), said: “This initiative will help us emerge from the traditional patterns of property buying, selling, and registration. These processes require us to embrace technology and change, both of which paved the path to launching real estate products with the participation of developers to attract new investors.

“Previously, the real estate market targeted a certain class of investors – the wealthy. Today, however, through these four products, we seek to cover a larger segment of investors, both inside and outside the UAE, and allow them to own properties in Dubai and benefit from high returns on investments.”

Source: arabianbusiness

Are Federal Funded Social Welfare Programs the Solution?

Some people believe that federal funded social welfare programs are a solution to poverty. I mean it seems like a straight forward solution right. If the poor are hungry, then government provides subsidized food or some sort of food assistance program. If the poor are homeless, then government provides free or subsidized housing.

Don’t get me wrong, I do believe in welfare programs. I believe that they can be beneficial, help lessen the burden that the poor face and improve their standard of living. However, without tackling the main issues that plague this country like population size, education, unemployment and security, most welfare programs will not have as much effect on the lives of those it was designed for as it should. I believe in giving as many people as possible the tools needed to survive and be independent before implementing welfare programs.

Nigeria is a highly populated country. We all know that it is one of the most populated countries in the world. According to the country profile data of Nigeria by the World Bank, the total population (millions) of Nigeria in 2018 was 195.87 and the population density (people per sq. km of land area) was 215.1.Nigeria’s population is large compared to its GDP, which leads its GDP per capita (Y/N; where Y is GDP and N is Population) to be low. This means that the standard of living for most Nigerians is low.

A large portion of Nigeria’s population live below the World Banks poverty line of $1.90 or N684.97(at $1=N360.51) per day. According to an online article on Vanguard news titled 91 million Nigerians now live in extreme poverty- World Poverty Clock by Emmanuel Okogba on February 16, 2019, the World Poverty Clock created by Vienna based world data lab estimates that approximately ninety-one million Nigerians where living below the poverty line as of February 13, 2019. Funny enough, the title of the article gives away the figure without you having to even read it.

This figure however, is an increase from the figure as of June 2018, which was approximately eighty-seven million. According to the 2017 revision of the world population prospects by the population division of United Nations DESA, Nigeria’s population is “projected to surpass that of the United States and become the third largest country in the world shortly before 2050”.

A map showing total fertility rate of each country in the world by the population division of the United Nations DESA estimates that total fertility rate (TFR, the number of children a woman is expected to have if she lives through her child bearing years) for Nigeria will drop to 3-3.5 births from 2050-2055. This is still higher than the TFR for most developed countries today, which is interesting.

Thirty-one plus years from now, the total fertility rate for Nigeria will still be higher than the current total fertility rate of developed countries.There should be more avenues to educate women (both married and youths) and men about the proper use of contraceptives and the importance of family planning. I don’t think drastic policies, like China’s one child policy, are needed because it hurts the country’s economy in the long run. We just need to create more awareness about the financial importance of family planning and the benefits of reducing the total fertility rate in the country. Government/ General hospitals should offer classes for women, teenage girls and youths about the use of contraceptives and safe sex practices in order to prevent unwanted pregnancies.

The poor lifestyle that most Nigerians find themselves in is not voluntary and is difficult to come out of. Some of those below the poverty line are stuck in a poverty trap and so their investment tomorrow is always less than their investment today. In such a situation, these people in a poverty trap would need significant financial aid to help them climb out of the poverty trap.

However, this financial aid is not easy to acquire for most and people should not have gotten to that level of requiring financial aid in the first place. If the government provided quality and affordable public education systems for citizens as well as ample employment opportunities for recent graduates, majority of the people stuck in a poverty trap right now might not be stuck.

The public education system in Nigeria leaves much to be desired. Even if you are able to go through the system and graduate from university, there is no guarantee that you will get a job anytime soon.This discourages parents from investing in their kids’ higher education, especially households that can hardly afford two meals a day.There are a lot of hardworking and intelligent youths sitting at home idle with nothing to do.

This lack of job affects them financially and ruins the hopes of families that expected financial assistance from their graduate child. If government can address the unemployment problem, most of the Nigerian youths will have jobs and then there will be less people dependent on welfare programs when they are implemented, which increases the chances of success of these programs.

Other than unemployment, education and population size, another main issue and the most important one in fact is security. Security within the country has been a popular topic of discussion. People in the north live in fear of the terror group operating heavily within their borders. Many others are extremely careful about the places they visit because of the fear of being kidnapped.

The weird thing is that kidnappers are very bold and smart now a days. Some don’t even attempt their evil acts at night in lonely environments anymore. They do so during the day on a road that you would least expect it. So how do you know which area is safe? Even if government by some miracle is able to fix the education system, address population growth and provide more jobs, it would not make a difference if there is no security. The lack of security can prevent people from enjoying government services and limit the effectiveness of any social welfare program implemented by the government.

For example, in areas where insurgents operate, parents will not be eager to send their kids to school even if there is a large supply of schools. Workers will also not be keen to go to work because of fear of being harassed or even kidnaped on their way to work. So, you see even if everything else is fixed and security is ignored, it will seem like nothing happened.

With the large number of people living in poverty, what kind of welfare program can the government implement that will actually make a difference in people’s lives and not add to our deficit and national debt? This is why I say that the government has to first tidy up its act. Some developed countries are finding it hard to reign in the cost of some of their welfare programs. Showing that welfare programs are not something to jump into without getting your house in order.

It is not too late for government to implement changes so that the younger generation of Nigerians as well as future generations will have a different experience than most of us. By addressing the bigger issues and learning how to effectively manage resources, we as a nation can ensure that any welfare program implemented by the government will blossom.

Source: businessdayng

Ministers designate induction retreat commences August 15

SGF Nigerian President Muhammadu Buhari has approved an induction retreat for Ministers Designate to be held at the State House Banquet Hall, Abuja from August 15-16, 2019.

Secretary to the Government of the Federation, Mr. Boss Mustapha disclosed this on Friday in Abuja, Nigeria’s Capital.

Mustapha noted that the date was fixed in view of the need to allow Ministers Designate enough time to study the documents (Status Report on Policies, Programmes and Projects; the 2019-2023 Road Map, FEC Handbook, etc) and in consideration of the upcoming Sallah break.

He urged all Ministers designate to pick up relevant documents for their study and guidance, preparatory to the inauguration on Tuesday 6th of August at the Office of the Secretary to the Government of the Federation (OSGF) (Cabinet Affairs Office) from 10.00am.

“Ministers Designate are also requested to please bring along and submit to the OSGF, their updated CV in soft and hard copies as well as any valid identification document,” SGF added.

Ministers designate were urged to contact the Permanent Secretary, Cabinet Affairs Office, OSGF on 08023229481 for further clarification.

“Wishing you a Happy Sallah and looking forward to seeing you at the Retreat,” Mustapha said.

Nnenna.O

Housing Share of GDP Continues to Decline

With the release of the estimate of second quarter 2019 GDP growth (2.1% growth rate), housing’s share of gross domestic product (GDP) continued a downward trend, more evidence of the the lack of housing supply caused and affected by ongoing housing affordability issues. Housing’s share of GDP fell to 14.6%. The home building and remodeling component – residential fixed investment – made a sixth consecutive negative contribution to GDP growth and declined to 3.1% of GDP.

 

Housing-related activities contribute to GDP in two basic ways.

The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building, multifamily development, and remodeling contributions to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees.

For the second quarter of 2019 RFI was 3.1% of the economy, reaching a $589 billion seasonally adjusted annual pace (measured in inflation adjusted 2012 dollars).

The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines for GDP.

For the second quarter, housing services was 11.5% of the economy or $2.18 trillion on seasonally adjusted annual basis.

Taken together, housing’s share of GDP was 14.6% for the quarter.

Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle.

Source: eyeonhousing

Banking Industry Still Exposed to High Credit Risk – NDIC

The Nigerian Deposit Insurance Corporation (NDIC)  has disclosed that the banking industry remains   exposed to high credit risk as depicted by the high Non Performing Loans (NPLs) ratio of 11.70% as at 31st December, 2018.

This, the Corporation said, exceeded the maximum prudential threshold of 5%.

But the disclosure which was contained in the 2018 annual report of the corporation hosted in its website yesterday also indicates that it is still  an improvement when compared with NPLs ratio of 14.84% recorded as at 31st December, 2017.

The report further  highlighted that  the banking  industry NPLs decreased by 25.15% to ₦1.79 trillion in 2018 from ₦2.36trn in 2017. In the same vein, the NPLs to Shareholders’ Fund Ratio improved from 69.21% in 2017 to 57.50% in 2018.

The banking industry average Capital Adequacy Ratio (CAR) increased to 15.26% as at 31st December, 2018 from 10.23% as at 31st December, 2017, above the regulatory minimum of 10% and 15% for banks with national and international authorisation, respectively.

The increase in the CAR could be explained by the 44.88% increase in the total qualifying capital from ₦2,201.58 billion in 2017 to ₦3,189.55 billion in 2018 and complemented by the 2.89% decline in the Total Risk-Weighted Assets from ₦21,520.82 billion in 2017 to ₦20,898.71 billion in 2018.

The recapitalisation requirements declined from ₦1.57 trillion in 2017 to ₦704.88 billion as at 31st December, 2018. The banking industry unaudited profit before tax (PBT) significantly rose from ₦150 billion in 2017 to ₦310 billion in 2018. That could be attributed to a reduction in operating expenses by 25% from ₦440 billion in 2017 to ₦330 billion in 2018.

The Yield on Earning Assets increased from 2.62% as at 31st December, 2017 to 3.23% as at 31st December, 2018. Similarly, Return on Assets (ROA) rose to 0.88% as at 31st December, 2018 from 0.48% recorded as at 31st December, 2017.

Also, Return on Equity (ROE) increased from 4.70% as at 31st December, 2017 to 9.73% as at 31st December, 2018. A breakdown of the report showed that the total credit extended by the deposit Money banks (DMBs) to the domestic economy amounted to ₦15.29 trillion in 2018, representing a 3.90% decrease from the ₦15.91 trillion recorded 10 in 2017.

Source: dailytrust

Ghana’s $24m Investment in Scanners, Automation Technology Holds Lessons for Nigerian Ports

As Nigeria continues to carry out manual inspection of containers and other imports at the nation’s seaports, Meridian Ports Services (MPS), operator of the newly built Terminal 3 of Ghana’s Tema Port, has invested over $24 million in acquisition of Customs inspection infrastructure and superstructure, popularly known as scanning machines.

With this development, Ghana’s port has overtaken Nigeria in running of a digitalised port system as Nigeria Customs currently carries out 100 percent physical and manual examination of containers, six years after the expiration of the Destination Inspection (DI) contract formerly handled by private companies that provided scanning services at the ports.

By implication, over 500,000 twenty-foot equivalent units (TEUs) of containers and about 71,535,636 million metric tonnes of general cargo, dry and bulk cargoes that come to Nigerian ports annually are manually inspected by the officers of the Nigeria Customs.
Meanwhile, the newly launched MPS Terminal 3 at Tema Port has the latest scanning technology installed in the port terminal, which is expected to facilitate the smooth movement of trade in and out of the port.

Dorothy Arhin, head of Ghanaian Customs Unit, said building of import scanner has transformed and added value to the role of Customs in cargo handling at Tema Port.

She described the new technology as a game changer to the Customs processes and cargo clearing procedure, which she said would bring better transparency.

 

Recall that in line with the port reform agenda of 2006, the Federal Government entered into contract with Scanning Service Providers (SSPs) including Cotecna, SGS and Global Scan, responsible for approving Form M, issuing Risk Assessment Report (RAR) and scanning goods imported into Nigeria.

The contract, which was based on build, operate, own and transfer (BOOT) regime, allowed the DI agents to acquire multi-billion dollar mobile and fixed scanners for electronic examination of imports at the ports and border stations allocated to them.

Six years after the DI agents handed over the equipment to Customs to manage, cargoes now dwell between one and two months in Nigerian ports and the importers pay demurrage and storage charges for the delay.

“Today, scanning machines are no longer functional in Nigerian ports and border stations. Congestion is building in the ports because the goods are not being cleared as they should,” said Tony Anakebe, managing director, Gold Link Investment Ltd, a Lagos-based clearing and forwarding company, in an interview with BusinessDay.

Anakebe said the importer pays demurrage and storage charges to shipping companies and terminal operators, which adds to the cost of doing business, and ends up shifting the cost to the end consumers by raising the market prices of commodities.

He said Nigeria Customs needs to learn from the digital transformation that recently took place in Tema Port of Ghana to change the nation’s manual cargo inspection procedure and ameliorate the plight of Nigerian importers.

Meanwhile, Mohamed Samara, chief executive officer of MPS Terminal 3, said recently that the new technology is expected to eliminate Customs’ revenue leakages and supplement domestic revenue.

“The new setup provides Authorities with audit trail of all receipt and delivery movements in the port,” Samara said.

This means Nigeria can generate more money from Customs through blocking leakages and creating businesses for firms that import goods.

MPS Terminal 3 also has connected gate technologies comprising Licence Plate Recognition (LPR) for reading vehicle’s number plate, Optical Character Recognition (OCR) for recognising container numbers, integrated weighbridges, and Radio Frequency Identification (RFID) which identifies trucks that use the terminal.

“Driver access to the terminal is controlled using Biometric Access Control and drive-through Smiths Detection scanning portals that automatically inspect trucks, containers and other vehicles, for explosives, drugs and weapons,” Samara said.

BusinessDay understands that in Nigerian ports, vehicles especially trucks are still being inspected manually as the government is yet to introduce the electronic gate (e-gate) inspection machine.

“Inspection of trucks manually in our ports sometimes creates long queue at the port gate which, at peak periods, creates serious congestion and delay for truckers and the cargo owners,” said Jonathan Nicol, president, Shippers Association of Lagos State.

MPS Terminal also uses a Truck Appointment System (TAS) and call-up system that allow freight forwarders to pre-book appointments before accessing the port, a system Nigeria is currently struggling to install in Apapa and Tin-Can Ports.

This is fully integrated with the Terminal Operating System (TOS) to provide process automation for drivers, eliminate congestion and maximise efficiency levels without compromising security at the port.

Findings have shown that absence of call-up system has been the major reason Apapa gridlock has persisted over the last seven years as truckers indiscriminately queue on the roads leading to the port in a quest to access the port to either drop empty containers or pick laden goods.

Remi Ogungbemi, chairman, Association of Maritime Truck Owners (AMARTO), told BusinessDay that congestion on Apapa roads could be addressed using effective call-up system that gives truckers appointment on when to come to the port to do business.

“Though the NPA has tried to introduce a manual call-up system, we need to have an electronic call-up, which the authority promised to set up in August, to help organised truck movement within the port environs,” he said.

Source: businessdayng

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AfDB to Governments: Focus on job Creation, not GDP Numbers

The African Development Bank (AfDB) has advised African governments to focus on creating jobs for the youth instead of being concerned about GDP growth figures.

Speaking on Saturday on a panel at the 2019 Tony Elumelu Foundation Entrepreneurship Forum, Akinwumi Adesina, the AfDB president, proposed the establishment of a Youth Entrepreneurship Investment Bank.

This initiative, he said, will focus 100% on providing funding for start-ups, small and medium enterprises across Africa.

He said while it was good to focus on how to grow the GDP, the emphasis should be on economic growth that could create quality jobs for the people.

Adesina, who is Nigeria’s one-time minister of agriculture, cautioned financial institutions to stop citing risk as a reason for restricting access to entrepreneurship funding, advising them to come up with safeguards to mitigate the risks.

“Its time for African leaders to shift from youth empowerment to youth investment,” he said.

“We need to set up Youth Entrepreneurship Investment Bank. This bank needs to unlock the entrepreneurial initiative in our youths by looking at assets and not risks,” he said.

In his address, Benedict Oramah, the president of the African Export-Import Bank, Prof. Benedict Oramah, charged young entrepreneurs to be more daring and not be afraid to take risks in their businesses.

He urged them to never let the infrastructure deficit in most countries on the continent hinder them from being successful in their chosen enterprises.

Source: thecable

Nigeria’s GDP can hit $1.5trn with new national carrier – Sirika

Nigeria’s Gross Domestic Product (GDP) could hit over $1.5 trillion if the new national carrier is fully operational.

Former minister of State for Aviation, Hadi Sirika, stated this during his ministerial screening in Abuja on Thursday.

Speaking to journalists after his ministerial screening, he promised to pursue the proposed national carrier to a logical conclusion if reassigned the portfolio by President Muhammadu Buhari in his second term in office.

In September 2018, the Federal Government had suspended the new national carrier, Nigeria Air, amid controversial circumstances.

The Federal Government is expected to own a maximum of 5 percent shares in the venture.

Sirika said: “I believe having a very vibrant private sector led national carrier is good for the economy of Nigeria, it is good for the population of Nigeria, it’s good for the centrality of Nigeria, it is good for the wealth and fortune of Nigeria.

“One aeroplane in Nigeria is equal to 300 direct jobs to start with. The relationship between GDP and air transportation is direct and we have the biggest GDP in Africa.

“By the US estimation we are a trillion dollar GDP, by official figures of the NBS, we are half a trillion dollar GDP. All those that are not included like the barber shop, like the ‘akara’ shop and so is considered we might be hitting more than $1.5 trillion GDP, we are 200 million people that will grow more than 400 million people in 2030.

“We are the centre, eco-distant to all locations in Africa, we are at the centre of the world we are highly mobile travelling people and this is why the prices of tickets are so expensive because we dont have alternative, we cannot match them, whatever they give we have to take. Its market, it is capitalism, we can run away from it, I think it is important.

“If it is me or whoever is the minister, I think that this is a priority we will take, thank God a lot of job has been done”.

Source: businessday

Kenya example exposes weakness in Nigeria’s move to force bank lending – S&P

Forcing banks to lend backfired in Kenya and may be an indication that Nigeria’s latest lending directives to local banks may flounder, according to international ratings agency, S & P Global.

In August 2016, the Kenyan government imposed a contentious banking law that capped what lenders can charge consumers for loans at 4 percentage points above the central bank rate.

The policy was to fulfill an election-campaign pledge by President Uhuru Kenyatta to improve lending terms for consumers, against the advice of the central bank and the National Treasury.

The policy cut into lenders’ profit margins, forcing them to be more selective in who they provide money to. That caused credit growth to shrink as Kenyan banks grew risk averse.

Growth in credit to the private-sector averaged 2.4 percent in 2017 and 2018, compared with average annual expansion of 20 percent in the decade before the law came into effect, according to the Kenyan central bank data.

As the negative impact of the lending cap worsened, a Kenyan court suspended its implementation in March 2019, calling the legislation “vague, imprecise, ambiguous and indefinite.”

It is based on the impact of trying to force banks to boost lending to specific sectors in Kenya that analysts are skeptical about Nigeria’s latest approach to force banks to lend to small businesses in specific sectors.

“In our view, the CBN’s lending measures will not work and what the Kenyan government tried to do in 2016 could be seen as proof,” said Samira Mensah, director financial services ratings, S&P Global ratings.

“Forceful lending didn’t work in Kenya because the banks were not able to price risk and the same scenario could play out in Nigeria,” Mensah, who was speaking at the S & P Global’s annual Nigeria conference, said.

The Central Bank of Nigeria (CBN) this month introduced new lending measures to stimulate credit growth in an economy still reeling from a contraction in 2016.

The CBN ordered the deposit money banks to lend at least 60 percent of their deposits to small businesses.

They have till September 30 to implement the measure and failure to do so comes with a penalty of forfeiting more cash to zero-interest regulatory reserves.

The current average of banks’ loan to deposit ratio is 54 percent.

The CBN followed the loan to deposit directive by introducing a measure that cut how much money lenders can keep in interest-bearing accounts with the apex bank by 73 percent.

There has been major sell-offs on some of the country’s biggest banks since the announcement of the new measures. Stocks of Guaranty Trust bank, the largest bank by market value and Zenith Bank, the second largest bank by assets, both fell to a 52-week low.

International ratings agency, Moody’s, also thinks the CBN’s directive regarding interest payment on bank deposits is unlikely to force banks to grow their lending “aggressively.”

“Already, banks were only remunerated up-to NGN7.5 billion, and any amount above N7.5 billion was not remunerated,” Peter Mushangwe, a banking analyst at Moody’s said in an exclusive comment to Business Day.

The CBN is also said to be exploring mechanisms that would limit how much the banks can invest in government securities, which has been the biggest distraction for lenders who have been willing to lend to government for double digit return since 2016, rather than gamble on private lending in a risk-laden economy.

Yields on government securities have averaged 15 percent since 2016, allowing banks make some profit even though their loan books shrank.

Treasury bill yields have since cooled to around 12 percent after the government cut back on domestic borrowing in favour of foreign debt to manage its interest payment costs.

However, at 12 percent, banks are still piling cash into one of the highest returning government securities in emerging markets.

The impact of Nigerian banks’ risk averseness has been telling on the economy which has not grown fast enough to create new jobs for burgeoning population.

The economy grew 2 percent in the first quarter of 2019, and has moved below population growth since 2016, causing GDP per capita to shrink for three years straight.

Mensah believes weak bank lending is reflective of slow economic growth.

Source: businessday

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