Real Sector Lending: Banks Tell CBN To Release 5% Of CRR | Independent Newspapers Limited
Newsletter subscribe

Money Market

Real Sector Lending: Banks Tell CBN To Release 5% Of CRR

Posted: Apr 11, 2016 at 2:15 pm   /   by   /   comments (0)

Commercial banks in the country have called on the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, to honour his promise of releasing five per cent Cash Reserve Ratio (CRR) which he promised would be ploughed back to the banks for increased lending to the real sector.

The CBN after its Monetary Policy Committee (MPC) meeting in November 2015 slashed the Monetary Policy Rate (MPR) otherwise known as lending rate to 11 per cent from 13 per cent and reduced its CRR from 25 per cent to 20 per cent to increase liquidity in the system.

Emefiele, at the 247th meeting of the MPC said the liquidity arising from the reduction of the CRR will only be released to the banks that are willing to channel it to employment generating activities in the economy such as agriculture, infrastructure and solid minerals.

Nnamdi Okonkwo, Managing Director & Chief Executive Officer of Fidelity Bank after the meeting of the Bankers Committee said: “When the CRR was reduced by 5 per cent, the intention was to release the amount to the banks to enable them avail the real sector borrowers at a single digit.

“We discussed around that and agreed that the CBN will need to work out modality and hasten action towards releasing this 5 per cent drop in CRR to the bank to lend to the reel sector and we are looking forward to making that real”, he said

CRR is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. CRR is set according to the guidelines of the Central Bank of Nigeria.

This demand is coming on the heels of reduced lending to the reel sector on account of increasing Non Performing Loan (NPL) portfolio of commercial banks which has seen around N500 billion provision on the balance sheet of commercial banks for the year ended 2015

The amount of bad loans in the banking industry rose sharply by 78.8 per cent to N649.63 billion in 2015, indicating severe deterioration in the quality of the loan portfolio of the 22 banks. This was contained in a Central Bank of Nigeria (CBN) Staff report presented to the Monetary Policy Committee (MPC).

According to the Central Bank of Nigeria (CBN) Staff report presented to the Monetary Policy Committee, there was a general increase in bad loans (non performing loans) among the 22 Deposit Money Banks in the country. This was despite 30 per cent decline in new loans granted by banks in 2015 to N5.78 trillion.

Meanwhile, the CBN has admitted that the volume of non-performing loans in the banking system was now rising following the economic downturn currently hitting the country.

As such, the CBN said it had issued circulars advising the banks to retain more of their earnings in anticipation of the risks that the rising NPLs might pose to their balance sheets.

The Director, Banking Supervision, CBN, Mrs. Tokunbo Martins, said:  “Well, we all know that there have been an economic downturn and things are hard at the moment. We have spoken about the falling oil prices. So, non-performing loans going up is not unexpected, it is normal. If people are finding it difficult to get paid their salaries and are not able to pay their loans, it is not unexpected. If corporates are not doing well as they used to do and they are not able to pay their loans, it is not something unusual to see the NPLs rising. The average figure of five per cent NPL is not out of this world.

“But then, on the other hand, it is not really that we are resting on our laurels; the Bankers’ Committee did discuss it. We spoke about things like debt factoring; it is not something that has been done yet, but there were some discussions about it.

“The most important thing is that banks are conscious of it; they are preserving capital; they have enough capital as we speak and they are not distributing as much of their capital as they would have in the past in anticipation of this risk that may crystallise. This is because they know that they need to have enough capital to absorb the risk that may happen.”

Despite the increase in the NPL level, Martins said the banks were adequately capitalised to withstand the shock.

According to her, the CBN has made the banks to increase their Capital Adequacy Ratio over time in anticipation of possible economic shocks.

She said: “The banks have adequate capital to absorb the shocks that we are experiencing today. But even beyond absorbing the risks, it is also important that they continue to support the real sector. The CBN has issued guidelines that in view of the risks that we face right now (most of risks are not our own making), the banks need to be proactive and prudent.

“Therefore, don’t distribute as much as you used to do before; retain more and they are doing so. So when you put all that together, they can withstand the shocks and at the same time, they can still continue lending. So, I want to emphasise that the industry still remains strong and still remains well positioned to carry out its core function, which is intermediation and support of the real sector.”