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CBN Drives Banks’ Lending In A Disruptive Economy

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By Kayode Tokede, Lagos

This year marks 12 years Central Bank of Nigeria (CBN) directed Deposit Money Banks (DMBs) in the country to have a minimum capital base of N25 billion. This led to a lot of consolidation in the banking sector as some banks failed the re-capitalisation exercise introduced by the former CBN’s Governor, Prof. Charles Soludo.

According to him, “consolidations of banking institutions are through mergers and acquisitions. Banks that do not meet the minimum paid up capital by end of December 2005 or which remains un-sound/marginal would be liquidated by January 2006.”

Following Soludo reforms, Nigeria banks shrank from 89 banks to 25 banks but later reduced further to 23 banks with the merger of some banks like First Atlantic Bank Plc and Inland Bank to form Fin Bank Plc, Stanbic Bank Limited and IBTC chartered Bank Plc to form Stanbic-IBTC bank Plc. The number of operating banks later increased to 23 banks with the entering of Providus Bank Plc in 2017.

Banks operating in the country continued to face series of challenges on the heels of capital, foreign exchange income and asset quality.  The dwindling global oil prices also added to banks woe, but CBN had stressed that no bank is in crisis. Beyond the economic recession, the nation’s economy is characteristically determined and resistant to guidance or discipline.

Presently, all macroeconomic indices have turned hostile to the welfare of citizens. In April, 2017, inflation rate spiked to 17.26 per cent before it dropped to 17.24 per cent in May, while unemployment rate (which measures the number of people actively looking for a job as a percentage of the labour force) rose for the seventh straight quarter to 13.9 per cent in the third quarter of 2016, reported to be the highest level in more than five years.

The Monetary Policy Committee (MPC) meeting of CBN noted that in spite of the banking sector’s resilience, the weak macroeconomic environment has continued to exert pressure on the banking system. The MPC urged the CBN to intensify its surveillance, in order to address emerging vulnerabilities. The Committee also called on the DMBs to step up credit to the private sector to support economic recovery and convey a positive feedback to the financial system.

The present CBN’s Governor, Mr. Godwin Emefiele, has solidified the sector with improved regulatory policies on capital base and corporate governance as five banks in Nigeria are listed among top 500 financial institutions in the World.

FirstBank was named as the most valuable banking brand in Nigeria in the report. First Bank of Nigeria that ranked 357, led four others in the global ranking with a $301 million brand value, followed by Guaranty Trust Bank Plc (GTBank), which was ranked 395 with a brand value of $258 million. Zenith Bank was ranked 414 with a brand value of $247 million; Access Bank Plc was in 476th place with a brand value of $182 million while UBA with a brand value of $172 million ranked 487 in the world.

The above banks reported N2.69 trillion in capital base in 2016 to underlying banks effort at enhancing the quality and ensuring financial system stability. The considered banks had reported N2.29trillion capital base the previous year, an increase of 17.8 per cent.

Zenith Bank, a Tier-1 commercial bank has the highest capital base in the banking industry, followed by First Bank Holdings and GTBank. According to LEADERSHIP checks, most of the Tier-1 banks capital base crossed the N300 billion mark while Union Bank of Nigeria and Diamond bank Plc, two Tier-2 with capital base that crossed the N200 billion threshold in capital base last year.

The breakdown revealed that Zenith Bank’s capital base rose by 18.5 per cent to N704 billion in 2016 from N594.35 billion in 2015 while FBN Holdings reported 0.6 per cent from N578.8 billion in 2015 to N582.6 billion in 2016.

Guaranty Trust Bank and Access Bank capital base grew by 22.1 per cent and 23.6 per cent respectively.  Guaranty Trust Bank shareholder’s funds moved from N413.56 billion in 2015 to N504.9 billion in 2016 while Access Bank’s capital base hits N454.49 billion in 2016 from N367 billion in 2015. United Bank for Africa’s capital base moved from N332.6 billion in 2015 to N448 billion in 2016, representing an increase of 34.7 per cent.

Despite the haul in capital base, Zenith Bank and United Bank for Africa are planning to raise $1billion in 2017. Both banks had said the raised $1 billion senior unsecured medium term debt notes will be listed on the Irish Stock Exchange, with the expectation that the Notes will be traded on its regulated market.

In firmness to increased banks lending to the real sector, the CBN opted to ban some items from the Inter-bank foreign exchange market in 2015 in order to preserve the reserve and encourage local production.

In defence of the policy, Emefiele said, ‘’Before we decided to place them on the exclusive list, we thought about them and we felt these are items that can be produced in this country and that as long as we continue to import them, it would be difficult for our people to look inward.” He added that, “there is need to change the economy’s structure, resuscitate local manufacturing and expand job creation.”

As an advocate of CBN’s involvement in development banking, Emefiele has continued to complement the efforts of the fiscal authorities by pushing in the areas of creating mass employment, conserving scarce foreign exchange, and has met with several stakeholders in the ailing production sector in a determined move to turn around the decline experienced over the past decades in areas such as textile, palm oil, wheat and rice, among others.

Banks have borrowed from the CBN drive for agriculture through the Commercial Agricultural Credit Scheme, (CACS) that promote commercial agricultural enterprise in Nigeria. Sterling Bank Plc, First City Monument Bank among others are typical example.

Sterling Bank obtained the loan on behalf of the customer at zero percent to lend to the customer at 7per cent – 9per cent inclusive of management and processing fee. Repayment proceeds from CACS projects shall be repatriated to CBN on quarterly basis, all loans under the agriculture scheme is expected to terminate on 30 September 2025.

For Emefiele, CBN’s Anchor Borrowers Programme (ABP) is making impact especially in local rice production. The apex bank set aside N40billion, out of the N220billion earmarked for Micro, Medium and Small Enterprises(MSME) for farmers, at a single digit interest rate of 9 per cent, and small holder rice farmers will get between N150,000.00 to N250,000.00 to enable them procure seedlings, fertilizers and pesticides.

Out of the N40 billion, N4.9billion, reportedly, was disbursed to 78,581 farmers in Kebbi State which has an abundance of rice paddy, and each farmer got N218, 000 to enable them cultivate a hectare of land to plant three times a year, two dry season cropping and one rainy season cropping, a development which is said to have generated a total of 570,000 direct jobs and a harvest of 1 million tons of rice.

With a projection that local rice production would reach 2.730 million tons, CBN has set a target for the exportation of rice before the end of 2017. The apex bank this year directed banks to remit five per cent of their profit after tax (PAT) for investment in the Agricultural/Small and Medium Enterprises Investment Scheme.

Director/Financial Policy and Regulation Department, CBN, Mr. Kelvin Amugo, gave this directive in a circular issued to all banks titled: “Guidelines for the Operations of the Agricultural/ Small and Medium Enterprises Investment Scheme (AGSMEIS),”he stated:

The Bankers Committee at its 331st meeting held on February 9, 2017 approved the Agri-Business/Small and Medium Investment Scheme (AGSMEIS) to support the federal government’s efforts at promoting agricultural business/ Small and Medium Enterprises (SME) as a vehicle for sustainable economic development and employment generation. The present CBN governor has taken decisive steps needed to drive economy growth across real sector that is in tune with Federal government desire to diversify the nation’s economy away from Crude Oil.





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