CBN Berates Banks for not Lending to Real Sector

The Monetary Policy Committee of the Central Bank of Nigeria (CBN)  over the weekend berated Deposit Money Bank for not lending to the real sector of the economy.

Godwin Emefiele, governor of the apex bank, while addressing journalists shortly after the two-day meeting of the committee which was held at the headquarters of the CBN, lamented that in spite of the huge liquidity in the financial sector, banks apathy for lending had increased.

For instance, he said given their apathy to lending, banks may be inclined more to placing these new funds in the Standing Deposit Facility or use it to increase pressure on the exchange rate.

Emefiele, who put the excess liquidity of the banking sector at about N300bn, advised the sector to lend such excess funds to the real sector.

He said, “What the banks are doing is either placing these monies in treasury bills or even investing them at the CBN window.

“The committee further expressed concern about high banking system liquidity and its potential effects on inflation and the exchange rate.

“The committee was, however, concerned that banks were holding large excess reserves averaging over N300bn even when there were ample opportunities for productive and profitable lending to the real sector of the economy.

“The concern was further strengthened by the reality of injecting an additional N866bn into the system through the redemption of maturing AMCON bonds in October.
   
“Given the apathy to lending, banks may be inclined more to placing these new funds in the SDF or use it to increase pressure on the exchange rate.

“The committee advised the Bank (CBN) to explore ways of encouraging banks to lend such excess reserves to the real sector.”

The CBN governor said while the committee expressed satisfaction with the relative stability in the economy, it noted the risks that lie ahead.

The key risks include, he said, the possibility of capital reversals as the Fed’s Quantitative Easing in the United States finally ends in October, amidst dwindling oil output and declining oil prices, domestic security challenges and upward trending headline inflation.

In view of the risks, the governor said the policy challenges would include sustaining the stability of the naira exchange rate, managing the vulnerability to capital flow reversal, building fiscal buffers to insure against global shocks, managing inflation and exchange rate expectations and safeguarding the financial system stability as well as a buildup in election related spending.

Emefiele said while the committee welcomed the efforts by government to address some of the constraints and risks to economic activity like the insurgency in the North-East and the Ebola Virus Disease epidemic, it noted that as progress is made in these areas and in respect of other constraints like power and improving SME financing, the outlook for growth appears bright.

In view of these developments, the committee, according to the apex bank governor, was split between retaining the current stance of monetary policy and further tightening.