Low Revenues: CBN Fears Further Rise In Banks’ Lending To Federal Govt

The Central Bank of Nigeria has cautioned that if the government does not improve on in its revenue base, the banking industry’s lending to the government will rise significantly this year, this is as total assets base in the industry rose to N73.59 trillion as at December 2022.

International rating agency, Fitch Ratings had earlier mentioned that Nigerian banks typically lend to the government making subsidiaries’ creditworthiness closely linked with domestic sovereigns. This was evident in Moody’s downgrade of nine banks following the downgrade of the long-term issuer rating of the Government of Nigeria to Caa1 from B3, and change in the outlook to stable.

In his personal statement at the last Monetary Policy Committee meeting, CBN Deputy Governor, Corporate Services, Adamu Lamtek noted that the outlook for fiscal policy remains inclement adding that “the envisaged deficit in 2023 is large and may be financed in part by the banking system.”

The federal government led by President Muhammadu Buhari had signed the N21.83 trillion 2023 budget which has a deficit of over N12 trillion. Lamtek in the personal statements released yesterday noted that “as at end November 2022, banking system net claim on Government had grown by about 63.58 per cent relative to end-2021.

“Fiscal 2023 could see a more rapid growth in the aggregate unless financing conditions in the domestic economy tighten. Ultimately, government revenue must improve to complement monetary policy towards reining-in inflation.”

Deputy Governor, Financial Stability, Aisha Ahmad whilst noting that the financial system has provided significant support for needed domestic economic resilience amidst global shocks and remained strong into 2023, said liquidity in the industry has remained strong.

“Industry liquidity was also strong at 44.10 per cent over the same period and supported by significant cash reserve requirement buffers available to provide liquidity backstops, should banks require it. Key industry aggregates also continued their year-on-year upward trajectory with total assets rising to N73.59trillion in December 2022 from N59.24 trillion in December 2021, while total deposits rose to N45.50trillion from N38.42trillion over the same period.

“Total credit also increased by N5.14 trillion between end December 2021 and end-December 2022 with significant growth in credit to manufacturing, General commerce and Oil & Gas sectors. This impressive increase was achieved amidst continued decline in non-performing loans ratio from 4.90 per cent in December 2021 to 4.20 per cent in December 2022.”

On his part, another member of the MPC, Adenikinju Festus stressed the need to reduce fiscal pressure by cutting unnecessary spending such as the fuel subsidy. In the 2023 budget, the federal government plans to end subsidy payments by the end of the first half of the year, a decision that was pushed form last year.

Adenikinju stated in his personal statement that “I hope the FGN will follow through with its plan to remove fuel subsidy towards the second half of the year. This will reduce the fiscal pressure on the government, and it will also stimulate massive investments in the petroleum downstream sector and help realise the PIA goals.

“The removal of fuel subsidy may trigger initial flurry of increases in prices of commodities. However, this short[1]term impact in price increases will fizzle out in time, because of demand adjustments and supply expansion in the fuel market in response to price signals.

“However, a successful policy on subsidy must come with other complementary policies like full liberalization of the sector, as well as compensatory mechanisms for the vulnerable people in the economy.”