Govt Securities: CBN Tackles Banks’ Huge Investment Appetite
- Retains MPR at 13.5%
BY COBHAM NSA, ABUJA – The Central Bank of Nigeria (CBN) is set to introduce stringent measures to curtail Deposit Money Banks’ (DMBs) huge appetite for government securities to the detriment of private sector lending.
The CBN Governor, Mr Godwin Emefiele said the measures have become necessary to address banks’ excessive investments in government debt instruments, while abandoning their primary role of lending to grow the private sector businesses.
He said the initiatives that will soon be made public are part of a comprehensive package tailored towards engendering the much-desired sustainable growth in the nation’s economy
Mr Emefiele spoke against the backdrop of the bi-monthly Monetary Policy Committee (MPC) meeting in Abuja on Tuesday that maintained the Monetary Policy Rate (MPR) at 13.5 percent.
The MPC also kept the Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) at the current rate of 22.5 per cent and 30 percent respectively.
Offering insight on the proposed limit for DMBs’ investments in government securities, Emefiele said the MPC was concerned about the development and therefore thrown its weight behind the apex bank management to urgently evolve policies or regulations meant to curtail banks’ unfettered access to these financial instruments.
“According to our regulation, there is a particular minimum percentage of a treasury bill or government securities that the banks must invest in to remain liquid. But unfortunately and increasingly so, the banks, rather than focusing credit to the private sector, they tend to direct their focus mainly on buying government securities”, the CBN boss lamented
He further said: “It is important and expedient that the committee gave this directive to the bank’s management because this country badly needs growth.”
The Governor, who also spoke on strategies aimed at growing the economy on a sustainable basis, said the MPC believes that the banking industry must, as a matter of priority, focus attention on consumer and mortgage credit markets.
“The MPC also felt that the consumer and mortgage credit market must be catalyzed in Nigeria. That one of the inhibiting factors to growth is the fact that we have not been able to jump-start consumer credit and mortgage credit and business in Nigeria and the management of the bank will think of how to put in place regulations that will assist banks to ensure consumer credit is improved again in Nigeria”, he said
Mr Emefiele also admitted that the CBN is also seriously worried about growing insecurity and its telling effects on economic activities in the country, particularly in the area of agriculture.
Acknowledging that the security challenges are quite debilitating, the CBN Chief said all efforts should be made to ensure farmers return to their farms for productive activities if Nigeria’s food security agenda must become a reality.
According to him, in thinking about ways of improving employment and reducing unemployment in the country, it is important to acknowledge the “relationship between an improved employment, improved economy and the level of security in a country.”
“So we all have to work together” in order to address the current security challenges in the country, the CBN Governor admonished
Concerns about issues of credit risks in the banking industry also attracted comments from the CBN Governor who hinted that the apex bank will soon initiate strategies to address existing and emerging challenges.
He regretted that huge credit risks of private sector lending have resulted in very high Non-Performing Loans (NPLs) in the past, but assured that the initiatives are meant to make lending to the private sector more attractive for the banks going forward.
Mr Emefiele said though NPLs remained higher than the minimum regulatory 5 per cent threshold, there has been considerable improvement to between 9 and 10 per cent, which is down from the disturbing figures of between 15 and 17 per cent witnessed in the recent past.
