Nigeria's Monetary Policy Makers Worried Over Weak Lending By Banks

The Central Bank of Nigeria (CBN) is worried over the attitude of commercial lenders preference for investment in fixed income against extending credit to the productive sector of the economy.

In the various personal notes from the last Monetary Policy Committee (MPC) meeting, members are concerned that most banks have abandoned their traditional intermediation role and concentrated their assets on government securities.
The CBN Governor, Godwin Emefiele said total industry credits declined by 0.58 percent between April 2018 and April 2019, a trend he said has persisted since 2017.
“This is a worrisome development given the slow and fragile economic activity in the country,” Emefiele said in his personal note at the last rate-setting meeting of the MPC.
He disclosed that government securities including Open Market Operations (OMO) Bills account for more than 70 percent of the total specified liquid assets of banks while interbank placements account for a meager 4.75 percent.
For Mike Obadan, a member of the MPC, the regulatory bank must find a working method to limit banks purchase of government securities “so that they can focus on their primary functions of deposit mobilization and lending.’
Obadan specifically wants the CBN to expedite the implementation of its planned measures aimed at assisting the banks to minimise non-performing loans and boosting loans repayments.
On his part, Adeola Adenikinju condemned the practice where banks continue to focus on easy ways of making money, “including through its various charges on customers and government securities, at a time when the economy is in dire needs of banks’ credit.”
He said the country needs a vibrant consumer credit system in order to drive private consumption and expand domestic supply.
“Consumer credit is a major driver of growth in a capitalist economy. However, the ecosystem and institutions needed for a successful consumer credit system must be established,” Adenikinju said.
Also, Edward Adamu wants the regulatory bank to halt the growing trend in the banking industry whereby credit to the private sector is declining so as to strengthen economic activity and job creation.
“Clearly, economic growth needs to be better to be able to positively impact unemployment significantly, in view of the growing number of new entrants into the labour market.
“Given the protracted slack contribution of the oil sector, the impetus for speedier economic growth could only be expected to come from the non-oil sector. In particular, agriculture and services will continue to require considerable support to move the economy out of the apparent low growth trap,” Adamu said.
CBN Deputy Governor, Aishah Ahmad wants banking industry to increase lending to the real sector to strengthen the economic recovery, bolster domestic productivity and create jobs.
She also want operators in the banking industry to ramp up investments in technology to facilitate efficient retail loan distribution and explore using behavioral analysis and artificial intelligence to enhance credit decisions, particularly for loans to the informal sector.
“These must be supported by other institutions and initiatives designed to derisk lending to SMEs such as micro finance banks, (including the new national micro finance bank), collateral registry (to expand small and micro credit collateral options) and the CBN’s interventions in employment elastic sectors like agriculture and more recently textile and creative industries which will help bridge the credit gap and lower lending rates in the long run.”
The CBN report showed that Non-Performing Loans (NPLs) of the banking industry has declined to 10.95 percent in April from 11.28 percent in February this year, due mainly to recoveries, loan disposals and write-off. “The NPLs ratio is still higher than the prudential limit of 5.0 per cent,” the report stated.
Industry’s capital Adequacy Ratio (CAR) increased marginally to 15.60 per cent in April 2019 from 15.14 per cent in February 2019.