CBN deputy governor charges FG to sustain credit to real sectors

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Aishah Ahmad

By Anayo Ezugwu

AS Nigerians battle Coronavirus, COVID-19, Aishah Ahmad, deputy governor, financial systems stability directorate, Central Bank of Nigeria, CBN, and member Monetary Policy Committee, MPC, has charged the federal government to sustain credit to the real sectors of the economy. She said that sustained credit to the real economy particularly for small and medium enterprises, SMEs, and households will be crucial to the economic recovery.

In her personal statement at the end of the MPC meeting in July, Ahmad said maintaining banking industry liquidity will also be paramount. She acknowledged that healthy industry cash reserve levels provide adequate ammunition in this regard. According to her, support for these important sectors, responsible for about 48 percent of gross domestic product, GDP, will be crucial to boosting aggregate demand and bridge the existing negative output gap, which will also help temper inflation.

“Overall, the key challenge remains to preserve the positive industry performance in the light of spillover effects from the pandemic. Given the uncertainty about the length and depth of the crisis, particularly without a vaccine and worries about the second wave of infections, the Bank must

remain vigilant for any changes in the macroeconomic environment that poses a threat to resilience and financial stability.

“Given moderated inflation expectations, and in view of heightened global and domestic uncertainties, the Committee has room to focus on output growth in addition to its primary mandate of price stability, in the medium-term. In that regard, the Committee advised the Bank to retain the LDR and Differentiated Cash Reserve Requirement policies, while sustaining interventions in critical sectors of the economy, given their relative successes, to help boost domestic output and support the economic sustainability agenda of the government.

“A further rate cut in my view, relatively early as the economic impact of the pandemic unfolds, will complement ongoing efforts to stimulate the economy, providing further impetus for recovery to mitigate a recession in 2020. Thankfully, the financial system has remained resilient albeit with regulatory support.

“Staff reports presented at the meeting show a marked increase in the number of loans restructured; as at July 20, 2020, 22 banks submitted requests to 22 Classified as Confidential restructure 35,639 loans of businesses impacted by the pandemic, representing 41.92 percent of the total industry loan portfolio. This has partly reflected in improved industry risk profile, as Non-Performing Loans ratio declined from 6.6 percent in April 2020 to 6.4 percent in June 2020.

“Net interest margin remains robust despite lower interest income, perhaps due to much lower industry interest expense, as market deposit rates continue to decline. The Loan-to-Deposit Ratio (LDR), Global Standing Instruction, streamlining of access to Open Market Operations securities and other complementary measures have been strong tailwinds, which have strengthened intermediation – via increased lending to the key sectors such as manufacturing, agriculture and consumer markets (gross credit grew by an additional N300 billion from N18.6 trillion to N18.9 trillion between end-April and end-June 2020, respectively) and lower market lending rates, which have insulated the financial system from the worst impact of the pandemic.

“These efforts are being supported by ongoing CBN interventions – the N50 billion household and SME facility, out of which N49.195 billion has been disbursed to over 92,000 beneficiaries, N100 billion healthcare, and N1.0 trillion manufacturing and agricultural interventions alongside significant interventions in other growth-enhancing sectors, with remarkable implementation success,” she said.

The CBN deputy governor expresses confidence that the slight recovery in crude oil prices provides a little bright spot. Although, she lamented that oil prices remain low and volatile with negative implications for exchange rate stability and fiscal consolidation.

According to Ahmad, it will be important going forward, to improve supply and liquidity in the foreign exchange markets to preserve price stability. She said fiscal initiatives such as the Economic Sustainability Plan and National Gold Purchase Programme are steps in the right direction.

– Aug. 17, 2020 @ 8:35 GMT |

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