26 September 2015, Abuja – The Central Bank of Nigeria (CBN) has advised the nation’s Deposit Money Banks on the urgent imperative to aggressively support the efforts of government at job creation by channeling available liquidity into target growth enhancing sectors of the economy.
The growth enhancers, particularly the agriculture and manufacturing sectors, according to the bank, would promote employment through the conscious efforts of financial institutions in directing their respective lending there.
The CBN Governor, Godwin Emefiele, who made the appeal in the communiqué of the Monetary Policy Committee, however reiterated apex bank’s commitment to price stability, as the rising inflationary trend in the midst of tight monetary policy stance remained a concern.
He however said the overall outlook for economic activity is positive, as it is expected to improve on account of sustained improvement in the supply of power and refined petroleum products and progress with counter-insurgency in the North East area.
The bank chief pointed out that there were indications that some of the current monetary policy trends, including the Treasury Single Account (TSA) implementation, would impact negatively on banking sector performance indicators with more tightenings.
“The committee noted that liquidity withdrawals following the implementation of the TSA, elongation of the tenure of state government loans as well as loans to the oil and gas sectors, could aggravate liquidity conditions in banks and impair their financial intermediation role, thus affecting economic growth, unless some actions were immediately taken to ease liquidity conditions in the markets,” he said.
But Mr. Mustapha Suberu of Eczellon Capital Limited, in a note to The Guardian, said the easing of Cash Reserve Requirement (CRR) from 31 per cent to 25 per cent is positive for the banks.
Suberu said that the development signals that the era of restrictive monetary policy may be over and the apex bank may have commenced the path of accommodative monetary policies to support growth and employment in the economy.
“Commercial banks are no doubt the biggest winners of the committee’s decision as it should unlock liquidity for the banking industry, which could be channeled towards credit creation.
“From our estimates, total banking industry deposits was about N17.6 trillion as at the end of August 2015. This implies that the six per cent reduction in CRR would likely reduce the amount being sterilized by the CBN from N5.5 trillion to N4.5 per cent trillion, thus injecting additional N1 trillion into the banking industry.
“While the policy pronouncement by the MPC may have seemed positive, the potential downside of this move may be on the stability of prices in the economy, especially the Naira.
“We believe unlocking additional liquidity in a period where the CBN seeks to maintain exchange rate stability and curtail inflationary pressures may be counter-intuitive, as this could likely add to the pressure on the domestic currency and by extension, increase the general price level in the country,” he added.
Also, the Sub-Saharan Africa Banking Analyst and Head of Research – Nigeria, Renaissance Capital, Adesoji Solanke, said the apex bank simply restored the system’s liquidity levels to where they were pre TSA debits, by releasing to the banks the Naira equivalent of what was moved.
“This is positive for the banks because there were significantly more foreign exchange TSA debits than the naira last week, which implies that more Naira earning assets should be supportive of asset yields near term.
“Banks with more Naira than foreign exchange deposits should be proportionately bigger beneficiaries from today’s CRR ease – within our universe, Fidelity, Diamond, FBNH and Skye rank tops, but FCMB, Zenith and GTBank are not that far behind.
“A core reason attributed to the CRR ease was the MPC’s desire to see the banks invest more in critical sectors such as agriculture and mining, to help drive growth and reduce unemployment. We do not see this happening near term and think today’s decision is likely to put downward pressure on treasury yields as banks aggressively invest the released CRR in T-Bills and bonds,” he said.
He noted that Lower CRR would help to lower the funding costs near term, as well as improved return on assets.