Godwin Emefiele, CBN governor

Nigeria’s apex bank, the Central Bank of Nigeria (CBN) on Thursday, disclosed that total assets of the banking industry hit N53.64 trillion in June 2021, up from N47.82 trillion in June 2020.

The apex bank also disclosed that total deposits rose from N28.42 trillion in June 2020 to N33.85 trillion year-on-year.

The bank also noted that total credit also rose from N18.90 trillion in June 2020 to N22.04 trillion in June 2021, signaling that its Loan-to-Deposit Rate (LDR) policy is working.

A member of the CBN’s Monetary Policy Committee (MPC), Professor of Economics, University of Ibadan, Festus Adenikinju in his personal statement during the July meeting said credit expansion to all the sectors of the economy, in particular manufacturing, oil and gas and general commerce is good for the economy, Newsdirect reported.

He noted that the CBN intervention funds are delivering on their mandate and boosting credits to the MSMEs and households’ credits.

According to him, “Personal and households’ loans are rising after declining in 2020. Development finance interventions rose by 39.33 per cent to N326.22 billion in May/June from N234.14 billion in Mar/Apr 2021.

“However, the credit market in the formal banking is tightening as interest rate bands is narrowing. Lending rates increased relative to the saving rate, thus widening the interest rate spread.

“This is reflective of increased risks and inflationary considerations of the Deposit Money Banks. (DMBs).

“The liquidity conditions in the economy remain tight due to open market operations, CRR debits and revenue remittances by government agencies.”

He noted that the fiscal operations remain precarious.

According to him, “In April 2021, deficit fiscal operations stood at N3.2 trillion, and 70.8per cent of expenditure is in deficit. M3 grew by 2.02per cent month on month in June 2021 driven largely by growth in Net Domestic Assets (NDA) and contraction in Net Foreign Assets (NFA).

“The latter is caused by decrease in foreign asset holdings of domestic banking system. The persistence of insecurity in major food producing areas is increasingly impacting food supply and prices.”

He noted that despite the positive real Gross Domestic Product (GDP) growth and deceleration of inflation, key challenges remain.

He expressed that economic recovery remains very weak and fragile.

He explained that, “In the services sector, trade recorded negative growth. This sector is critical to poverty reduction and gender equality. Second, inflation is still unacceptably high, affecting consumers welfare.

“Third, the state of the fiscal account is very worrisome. There is continuous underperformance of government revenue relative to the budgeted values, affecting capacity of governments at all levels to deliver on government promises and revving up deficits and public debts to worrisome levels.

“In my view, one way to address the challenging government revenue, high fiscal deficit and inflation induced through the mechanisms for financing the deficit is for government to develop a framework for winding down the unsustainable petroleum subsidy regime which has negatively affected government fiscal space, accretion to foreign reserves, put pressure on the naira exchange rate and hinder the development of the downstream sector.

“The subsidy on petrol is no longer sustainable and its retention is difficult to justify under the current economic climate.

“The passage of the PIB is likely to be beneficial to the economy, attracts investment to the oil and gas sector and facilitate employment and growth.

“Hence, the National Assembly must quickly resolve the current impasse and ensure that it is sent to the President for his assent. No matter its shortcomings, the PIB will enhance the efficiency of the sector, streamline regulatory framework, removes the cloud of uncertainty around the fiscal regime, facilitate development of the gas sector, improve on the present state of the oil producing host communities and improve the performance of the national oil company.

“The present state of the economy justifies the continuation of the CBN intervention programme. The rise in unemployment rate to 33.3per cent in 2020Q4 from 27.1per cent in 2020Q2, especially among the youths and the negative per capita income growth justifies continuous unconventional support for the Government.

“While it is true that aggregate credit in the economy is expanding, it is important to link the credit expansion to sectors that are most likely to drive employment growth and poverty reduction.

“In addition, both the monetary and fiscal authorities must explore ways to diversify and expand sources of foreign exchange to the economy, including through the diaspora bonds, support for non-oil exports sectors, reduce the constraints to exports, reorientate agencies link to the export sector to promote export competitiveness of the Nigerian products.

“We must also explore ways to derisk the economy, encourage credit expansion by addressing issues like land titling, and challenges to foreclosures, insecurity are inhibitors to ease of doing business in the economy.”

Deputy Governor, Financial System Stability, CBN, Aisha Ahmad in her statement said, the Bank’s development finance interventions in critical sectors which increased by 39.33 per cent from N234.14 billion in May 2021 to N326.22 billion in July 2021 boosted supply and contributed somewhat to the moderation being witnessed in domestic prices.

According to her, inflation remains on a downward trend, it remains far above the six to nine per cent inflation threshold of the Bank, thus requiring concerted efforts to address structural factors (security, infrastructure, and logistics arrangements) driving domestic price developments.

She explained further that, “With the Committee’s decision to discontinue weekly FX sales to Bureau de Change operators, more stability and transparency is expected in the FX market.

“The Bank is thus advised to sustain the implementation of policy measures aimed at sanitizing the FX market and also vigorously enforce FX regulations to ensure that all legitimate demands for FX are met.”

She said the banking sector remains resilient with strong fundamentals.

She revealed that the banking industry continued to post strong growth with total assets increasing by N5.82 trillion or 12.17 per cent between June 2020 and June 2021.

According to her personal statement, “Financial Soundness Indicators were also robust and significantly met minimum regulatory requirements – Non-Performing Loans (NPLs) ratio declined further to 5.7 per cent in June 2021, 10 bps lower than the rate recorded in the previous month, while capital adequacy and liquidity ratios remained robust at 15.5 and 41.3 per cent, respectively, in June 2021.

“Increased credit to growth enhancing sectors of the economy such as agriculture, manufacturing and general commerce helped support output recovery recorded in the domestic economy.

“Total credit increased by N3.14 trillion from N18.90 trillion to N22.04 trillion between end-June 2020 and end-July 2021 due largely to increase in level of funding and the CBN’s LDR policy.

“Whilst noting the satisfactory performance of the financial system, the Bank must remain vigilant and proactively manage operational, asset quality and other risks to financial system stability, especially with the lingering impact of the COVID-19 pandemic.

“The Bank is also advised to increasingly consider Environmental, Social and Governance risk factors and ensure their integration into its policy tool kit given recent unprecedented extreme weather conditions and frequent natural disasters being witnessed across the globe.”

Another member of the MPC, Deputy Governor, Operations, CBN, Folashodun Shonubi, said, “Clearly, the domestic economic environment is still challenged on multiple fronts. Inflation has delightfully trended downward for the second consecutive month after nineteen months of consistent increase, but remained at a significantly high level, with implications for investment and purchasing power.

“Though growth is largely driven by the non-oil sector, it remains fragile at below pre-pandemic levels. The situation calls for a redoubling of effort by the fiscal and monetary authorities to intensify implementation of various stimulus programmes.”

Shonubi added that, “While I recognise that the Federal Government has made some progress in the vaccination programme, and also facilitating further reopening and stimulating the economy, especially in an era of very low revenue.

“There is room for more to be done to enhance the slow recovery. Government must aggressively explore every collaborative opportunity with the international community to access more doses of COVID-19 vaccine, while also stepping up the campaign to encourage the populace to come forward to get fully vaccinated towards achieving herd immunity.

“Addressing the widespread insecurity challenges is a task that requires Government to step-up efforts in order to reverse the negative effect on the overall business and investment environment. I also reckon that the fiscal authority will continue to explore private-public partnership options to aggressively shore-up investment in public infrastructure.”