CBN Proposes Single-digit, Long-term Loans To Manufacturing, Agric Sectors

The Central Bank of Nigeria (CBN), on Tuesday concluded the two-day meeting of its Monetary Policy Committee (MPC) and besides the majority of members voting to once again retain the benchmark rates, two critical sectors- manufacturing and agriculture were singled out for friendlier credit terms.

A major highpoint of the meeting was the argument seeking to promote increased bank lending to the real sector of the economy as a way of enhancing job-led economic growth as a way of consolidating economic recovery.

While acknowledging the difficulty in encouraging job creation in an environment with deficit infrastructure, the committee members agreed on the need for companies operating within both sectors tagged “employment elastic sectors of the Nigerian economy,” to get bank credits at 9%, minimum tenor of seven years, with a two-year moratorium.

Noting the need for the CBN to continue encouraging deposit money banks (DMBs) to increase the flow of credit to the real economy, thereby consolidating economic recovery, the committee spoke of the such unorthodox approach to reforming the market, thereby strengthening credit flow at this time.

Members also noted the need to “encourage credit constrained businesses, particularly the large corporations… to issue commercial paper to meet their credit needs,” which the CBN should patronise, “if need be.”
The communique, signed by Godwin Emefiele, CBN Governor and chairman of the MPC, while “details of this framework are being worked out by the (CBN’s) Banking Supervision, Monetary Policy and Research Departments of the (CBN) and would be released soon.”

But one way deposit money banks may be propelled to direct cheap lo ng term bank credit towards players in the manufacturing and agriculture sectors, may be through a differentiated dynamic cash reserves requirement (CRR) regime.
Meanwhile, seven members voted to retain the Monetary Policy Rate (MPR) at 14%, while two voted to increase the rate by 50 basis points, one, to raise it by 25 basis points.

Members also lamented that economic recovery remained fragile, calling for the speedy implementation of the 2018 Federal Government Budget, as well as the medium-term Economic Recovery and Growth Plan (ERGP) to strengthen output growth in the Nigerian economy.
At a time of robust crude oil price in the international market, members warned that at US$47.2bn on July 23, 2018, there need for the Federal Government to build fiscal buffers against possible oil price shocks in the future.

The committee therefore noted the ominous rise in the monthly distribution of revenues at the monthly Federation Account Allocation Committee (FAAC) meeting, which it said portends “the danger of the absence of reserve buffers to absorb shocks in the future.”
Having realized that the Federal Government may not be saving adequately for the future, the MPC urged the “fiscal authority to build-up buffers, especially now that the price of crude oil is relatively high.”

While expressing confidence that economic growth would be firmer in the second half of 2018, helped by faithful implementation of the year’s budget, sustained stability in the forex market, as well as increase in crude oil production and prices, members cautioned of the downside risks to the growth outlook. These they listed as: the “continuing delay in the implementation of the 2018 budget; worsening farmer-herdsmen conflicts in some parts of the country; continued non-payment of workers’ salaries and pensions in some states; rising sovereign debt, as well as uncertainties surrounding the direction of trade, including the external demand for Nigeria’s oil.”

Members also reiterated an earlier call on the Federal Government to pay outstanding contractor debts, which would help reduce the level of non-performing loans among banks, just as banks should ensure strict compliance prudential guidelines.

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