The Central Bank of Nigeria (CBN) has insisted that sustaining banking sector lending to critical sectors of the economy remains paramount as an antidote to preserving financial system stability amid tight monetary policy.
This was contained in the apex bank’s communique of the 291st meeting of the Monetary Policy Committee (MPC) and personal statements of members which was released at the weekend.
Deputy Governor at CBN, Aishah Ahmad, while explaining that borrowing costs is on the increase and slow paced growth in credit is due to the positive correlation of market lending rates to the Monetary Policy Rate (MPR), said sustaining banking sector lending to critical sectors of the economy as monetary policy tightens to contain inflation, therefore, remains paramount. According to her, industry credit increased by N4.54 trillion between end-April 2022 and 2023 with significant portions of the credit granted to output elastic sectors (manufacturing, general commerce, agriculture, information and communication), and has been in an upward trajectory since 2019, yet the monthly trend in credit growth declined from 1.31 per cent in March 2023 to 0.05 per cent in April 2023.
“Lending rates also remain high in response to the contractionary monetary policy stance. These developments point to the importance of balanced actions in the pursuit of the price stability mandate.
Gratuitously, the CBN’s intervention loans targeted at selected industries and Small and Medium Enterprises, are currently at single digit to stabilise access to affordable finance for employment generating sectors.
This should be positive for the macro-economy, stimulating further output growth and positioning businesses to maintain strong cash flows, whilst minimizing default risk and preserving financial stability”, Ahmad said.
She also revealed that industry soundness indicators also remain strong as of April 2023, with capital adequacy ratio at 12.8 per cent, non-performing loans ratio at 4.4 per cent (from 5.3 per cent in April 2022) and liquidity ratio at 45.3 per cent (above the 30.0 per cent minimum) even as credit to the real sector continued to grow.
“Stress test results showed that industry solvency and liquidity positions could withstand mild to moderate shocks in the short to medium term. Nonetheless, the sector must continue to build adequate capital buffers – ongoing implementation of the Basel III capital standards (which prescribes additional capital buffers) are relevant in this regard”, the Deputy Governor said.
Corroborating Ahmad, Professor Festus Adenikinju, a member of the MPC, said, “The stress tests conducted on the industry show that it can weather the major risks and vulnerabilities in the system”.
