MPC directs CBN to restrict banks access to bonds, treasury bills

BANKS’ access to government securities is to be restricted, Central Bank of Nigeria (CBN) Governor Godwin Emefiele said yesterday.

The Monetary Policy Committee (MPC), said the CBN boss, directed the apex bank to initiate policies or regulations that will facilitate the restriction.

Emefiele spoke at the end of the MPC meeting in Abuja.

He said: “In view of the abundant opportunities available to banks for unfettered access to government securities, which tends to crowd out private sector lending, the Committee called on the Bank to provide a mechanism for limiting DMBs access to government securities so as to redirect banks’ lending focus to the private sector, noting that this would spur the much needed growth in the economy.  It called on the government to use all machinery at its disposal to increase tax revenue to enable the government fund its budget adequately.”

Emefiele added: “It is important and expedient that the MPC gives this directive to the management of the Central Bank because this country badly needs growth. For us to achieve growth, those whose primary responsibilities it is to provide credit, who act as intermediaries in providing credit and are accorded as the catalysts to the economy, must be seen to perform that responsibility.”

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The CBN Governor lamented that Deposit Money Banks (DMBs) “would rather than performing that responsibility to the private sector that are the engine of growth of an economy, they would be directing their liquidity to other sectors of the economy”. “This is what the MPC frowns at and, therefore, giving the management of Central Bank the power to limit the DMBs’ propensity or their appetite for just going for government securities rather than directing credit to private sector of the economy.”

Emefiele noted that “the truth is that according to our own regulations, there is a particular minimum percentage of treasury bills or government securities that the bank must invest in order to remain liquid. But again, we have observed – and unfortunately too and increasingly so  – that the banks, rather than focusing on granting credit to the private sector, they tend to direct their focus to mainly in buying government securities.”

The CBN management, Emefiele said, “would certainly take this up and will think of how to do that.”

On Non-Performing Loans (NPL), the CBN governor said banks had always expressed some resistance to increasing credit ratio to the private sector, given the bad experience surrounding NPL.

However, the MPC, he announced, has also directed the management of the CBN to “think about administrative, legal and regulatory framework to be put in place to ensure that some of the credit risks that are associated with granting loans to the private sector that ultimately result in NPLs should be mitigated such that when banks decide to begin to lend to the private sector or increasingly that the probability that NPLs would rise should be moderated.”

The MPC welcomed the improvement in financial soundness indicators, but noted that although the NPLs ratio moderated, it remained above the prudential benchmark. Consequently, the committee considered and recommended to management a proposal to develop a comprehensive administrative legal and regulatory framework to speed up the recovery of delinquent loan facilities of the banking system by taking part in structured engagement with relevant stakeholders and authorities to mitigate credit risk and ultimately open up the credit delivery space in the Nigeria economy.

Also at the briefing, the CBN stated that the MPC resolved to retain the Monetary Policy Rate (MPR) at 13.50 per cent; retain the asymmetric corridor of +200/-500 basis points around the MPR; retain the Cash Reserve Ratio (CRR) at 22.5 per cent; and retain the Liquidity Ratio at 30 per cent.

He said that those who voted for a retention of rates at its present level believe the decision “was essential for better understanding of the momentum of growth before determining any possible modifications. They also felt that retaining the current policy stance provides an avenue for evaluating the impact of the apex bank’s intervention policies to support lending to the priority sectors of the economy”.