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CBN’s Moves To Cap Banks’ T-Bills, Bonds Investments



The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) recently announced that it would restrict banks’ access to government securities in order to redirect their lending focus to the private sector, with a view to spurring the much needed growth in the economy. Governor of the apex bank, Godwin Emefiele, who disclosed this at the end of its meeting in Abuja also gave the directive to the effect that the apex bank will initiate policies or regulations that will facilitate the restriction.

According to him, 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 Deposit Money Banks’ (DMBs’) access to government securities. He said it had become expedient that the MPC gives this directive to the management of the Central Bank because the country badly needs growth and that for the nation to achieve it, those whose primary responsibility 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.

We commend this move by the CBN and we believe that if given the necessary push, the initiative could be a catalyst that will breathe life into the nation’s real sector. It is a policy that has the propensity of birthing a new dawn of economic revitalisation and industrial rejuvenation in the country.

Lending by banks has been constrained by banks’ appetite for government’s securities. This needs to be addressed now. There is no doubt that banks are reluctant to lend. The directive by the CBN is a good one which is expected to make more money available to the real sector.

Nigeria’s commercial banks have for a long time downplayed their critical role as economic development drivers and have been so profit-oriented. The banks need to play their function well so that the country can experience economic growth and social stability.

Investment in treasury bills and bonds are risk-free and the returns are guaranteed. The federal government is the only debtor in Nigeria that cannot fail to pay its debts. If everything goes wrong, the federal government could print money and pay its debts. The guarantee profits in government securities have been attractive to the banks compared with giving credits to the real sector that is bogged down by many challenges like power, infrastructural decay, among others. However, the banks should not abandon their financial mediation role to the private sector because of the juicy offers in federal government debt instruments.

There are fears that if the CBN goes ahead to implement the policy, banks would find it difficult to sustain their profitability going forward, given their high appetite for such government securities. For instance, the five tier 1 banks in Nigeria invested a total of N4.61 trillion in treasury bills and FGN bonds, among others in 2018. So, the banks would be forced to change their investment strategy if the policy is enforced. The banks may then be compelled to seek opportunities in other investment outlets such as commercial papers.

Banks are exercising restraints in lending to the real sector in view of the high rate of non-performing loans (NPLs) which is now sailing perilously close to 15 per cent as against the 10 per cent set by the prudential guidelines. The assets Management Corporation of Nigeria (AMCON) is battling to recover banks’ bad debts in excess of N5 trillion.

Some analysts have said that policy makers need to look more into how it can turn on the tap of lending to the economy by de-risking the real sectors. The government should address the issue of decayed infrastructure, high cost of doing business and low consumer purchasing power that have hindered companies from magnifying operating profit that would empower them to pay interest on loans borrowed from financial institutions.

While we commend the apex bank for its giant strides in stimulating economic growth, it should do more in working with fiscal authorities to inject stimulus into the economy for things to work. The enabling environment should make businesses work. Power infrastructure are not adequate and in some places, they are not available. The growing rate of unemployment is reducing purchasing power of Nigerians.

More importantly, we urge the CBN to follow the directive with action for it to make sense to Nigerians.



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