The Central Bank of Nigeria (CBN) yesterday directed commercial banks to moderate their appetite for investing in government securities and oil and gas assets.
Government securities include Federal Government of Nigeria (FGN) Bonds and Treasury Bills (TB).
Its Deputy Governor, Edward Lametek, who spoke at the last Monetary Policy Committee (MPC) meeting released by the apex bank, said moderating demand for government securities and oil assets assist the lenders to rebalance their portfolios.
According to him, banks also needed to lend more to the economy for sustained economic growth.
He said the CBN’s interventions in agriculture have clearly shown the immense prospects with properly directed credit.
He said: “Deposit Money Banks (DMBs) need to step up credit delivery to the growth poles – agriculture, manufacturing and services. The last couple of months have witnessed a sustained improvement in banking sector resilience – industry capital adequacy and liquidity ratios have grown, while the non-performing loans (NPLs) ratio is on the decline.
“This should translate to improved intermediation to be relevant. While monetary policy has to accommodate the need to sustain current improvements in banking industry Financial Soundness Indicators (FSIs), the DMBs would need to moderate their appetite for government securities and oil & gas assets in order to gradually re-balance their asset portfolios.”
He said developments in the inter-bank market somehow suggest that the sterilisation actions of the bank have remained very effective in reining-in excess liquidity.
Lametek said it is important that such actions should continue to be a component of monetary management in this year as liquidity threats do not appear to be abating any time soon. Keeping domestic liquidity in check is important not only for inflation, but also for the stability of the naira exchange rate.
“Overall, my assessment is that risks to inflation have remained tepid notwithstanding the year-on-year increase in headline inflation in December 2018. This could change depending on the short to medium-term evolution of fiscal policy. Given elections in February and March, the fiscal outlook should become clearer as from April 2019,” he said.
According to him, the outlook for economic growth is a bit dicey concerning given the indications from the oil sector (especially the volatility in crude prices) and sluggish consumption demand.
“I view the balance of risks to economic growth tilting to the downside, which suggests that there is a more urgent need to support growth or in the minimum delay any policy action that might further tighten credit conditions. It is important to stress nonetheless that a supportive monetary policy orientation alone will not be sufficient to lift economic growth to the historical levels of 5-6 per cent. Other policies of government, particularly fiscal and sector policies have to be in the same mode,” he said.
Also, a member of the MPC, Adenikinju Festus, said with respect to the banking and financial system, there is positive trend in all financial system indicators (FSI) between November last year and January this year.
He said the NPLs ratio continues its downward trend, capital adequacy ratio of the banking sector improved three consecutive months, liquidity ratio inched northward, aggregate assets and deposits of the banking sector also rose over the same period.
However, the monetary authority should not lower its guard and must continue to monitor the banks and implement policies to consolidate and further improve the FSI.
“Aggregate credit expansion to the real economy continues to pose serious challenges. Net credit growth to the private sector is lower than provisional benchmark for 2018. The high-interest rate spread and the high lending rates are challenges that require new and innovative approaches,” he said.
According to him, the proposed National Microfinance Bank, strengthening of existing Micro Finance Banks, and other initiatives by the CBN to promote financial inclusion, access to credit by those in the rural areas, semi/urban and even the poor areas in the cities across the country at affordable interest rates would boost real sector activities at the Micro Small and Medium Enterprises (MSMEs) level.