Nigeria: CBN Unveils Measures to Cushion COVID-19 Impact On Economy

Central Bank of Nigeria.
17 March 2020

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, yesterday unveiled a number of policy initiatives aimed at reducing the adverse impacts of COVID-19 pandemic on the economy.

Analysts yesterday hailed the timely intervention by the apex bank.

The CBN's interventions include an extension of the moratorium on the apex bank's interventions programmes, interest rate reduction, creation of a N50 billion targeted credit facility and credit support for the healthcare industry.

Others are strengthening the CBN's Loan to Deposit Ratio (LDR) policy and regulatory forbearance.

The CBN governor announced a moratorium of one year on all principal repayments, effective March 1, 2020, as well as interest rate reduction on all applicable CBN intervention facilities from nine per cent to five per cent per annum for one year effective March 1, 2020.

He said the total CBN intervention facilities through the Commercial Agricultural Credit Loan Scheme, the Anchor Borrowers' Programme (ABP) and the Agric, Small and Medium Enterprise Scheme (AGSMEIS) among others are currently worth about N3 trillion and the new rate cut will apply to all facilities.

Speaking at a media briefing, the apex bank boss further announced the creation of a N50 billion targeted credit facility through the NIRSAL Microfinance Bank for households and small- and medium-sized enterprises (SMEs) that have been particularly hard hit by Covid-19, including but not limited to hoteliers, airline service providers, health care merchants, among others.

He also unveiled some sort of credit support for the healthcare industry to meet the potential increase in demand for healthcare services and products in the country.

To this end, the CBN governor said the apex bank had extended its intervention facilities to provide loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in the country.

He said the healthcare programme will also accommodate hospital and healthcare practitioners who intend to expand/build the health facilities to first-class centres, stressing that this is in addition to growing the size of existing interventions to the agricultural and manufacturing sectors in the country.

Emefiele further announced a regulatory forbearance for deposit money banks (DMBs) going forward.

He said the CBN will immediately grant all DMBs leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of COVID-19 particularly oil and gas, agriculture, and manufacturing.

He added that the apex bank would work closely with the banks to ensure that the use of the current forbearance is targeted, transparent and temporary while maintaining individual DMB's financial strength and overall financial stability of the system.

Emefiele also hinted on the resolve of the CBN to strengthen CBN's LDR policy in view of the success already recorded in growing credit to the economy and reducing interest rates.

He said the CBN would further support industry funding levels to maintain DMBs' capacity to direct credit to individuals, households, and businesses.

In doing this, the CBN boss said it would consider additional incentives to encourage the extension of longer tenured credit facilities, adding that DMBs are encouraged to continue to build capital buffers in order to improve the resilience of the sector.

He said the apex bank "stands ready to provide liquidity backstops as and when required in view of its role as banker to the federal government and lender of last resort," adding that "the CBN shall continue to monitor developments and will issue further updates as may be appropriate."

Emefiele said the CBN's response had become inevitable given that the COVID-19 pandemic was having significant adverse consequences for both the global and the Nigerian economies.

He said the development had led to "unprecedented disruptions in global supply chains, a sharp reduction in crude oil prices, turmoil in global stock and financial markets, widespread cancellations in sporting, entertainment and business events, the lockdown of large swaths of movements of persons in many countries, and intercontinental travel restrictions across critical air routes in the world.

"These outcomes have had serious adverse implications for key sectors, including but not limited to oil and gas, airlines, manufacturing, trade and consumer markets."

Expatiating further on the initiatives, Emefiele said revenue shortages occasioned by the impact of COVID-19 could make loan repayment difficult for individuals and organisations, who had subscribed to some of its intervention schemes, including the Anchor Borrowers Programme (ABP) and the CBN Agric, Small and Medium Enterprise Scheme (AGSMEIS) among others.

He said: "What we are trying to say is that the burden of taking a loan and the strain of getting revenue to repay the loan has been ameliorated for you to the extent that you pay much less for your loan repayment for a longer period."

Asked if the CBN will also consider a cut in Monetary Policy Rate (MPR) otherwise known as interest rate to further ameliorate the impact of the pandemic, the CBN governor said it could not unilaterally tinker with the policy rate, adding that a decision will likely be arrived at during the Monetary Policy Committee (MPC) meeting slated for next week.

He said: "The CBN would not decree on interest rates but what happens is that as a result of activities in the market, the size of liquidity in the market- interest rate will either go up or come down also depending on the decisions of the monetary policy committee.

"And you all know that as a result of the loan to deposit ratio policy, we have seen that banks over a seven-month period from May 2019 to December 2019 had granted almost N2 trillion in additional credit running across all the sectors of the economy, including households individual and the rest of them."

He added: "In the course of this, interest rates have also come down and we all know that. We know of some corporates today that have gone out to raise corporate bonds and they have raised those bonds at single-digit rates today, which are far lower than the rates at which they would have raised this money in the market even a year ago.

"So, what am I saying? That interest rate is already low anyway but that by our activities and also the fact that we would continue to emphasise and play direct focus on the issue of the loan to deposit ratio, which sort of pushes the banks to lend, and that process of market competition for loans will naturally result in lower interest rate like we have seen today. So we are not afraid of that, we know what to do and that will naturally happen."

Continuing, he said: "But the area where we felt that we needed to speak on directly is that because of the drop in revenues to companies that may be or that will be directly adversely impacted upon by this COVID-19 and economic crisis; because their revenues will drop, that we are saying that if your loan was initially meant to be a three-year loan, where for instance, you were paying on a monthly basis, say you took N10 million and you were paying N100,000 as repayment, we are saying that we are going to grant the banks the dispensation where they can restructure your loan from three-year to six-year, such that in addition to lie interest rate, what you will be making in installments of your loans would have been dropped from say N100,000 monthly to say N50,000 monthly to match the reduction in revenues arising from the impact of coronavirus. So it will naturally get to everybody."

On MPR reduction, he said: "There are so many things the monetary policy committee takes into consideration in its determination as to whether or not to alter MPR. I think we should just wait. Indeed, MPC will be holding next week and I am also sure that with the array of data that will be confronting MPC by next week, they will direct as to whether or not to alter, reduce, raise interest rate."

Analysts Hail CBN's Timely Intervention

Meanwhile, analysts have hailed the timely intervention by the CBN to mitigate the effects of the COVID-19 on the Nigerian economy.

Speaking to THISDAY, the Managing Director, Agusto & Co, Mrs. Yinka Adelekan, commended the central bank for being proactive, saying the measures would drastically reduce the cost of loans to the power sector, which in turn would enhance banking stability.

She said: "I think the CBN is being very proactive because of the impact of the COVID-19 cannot be underestimated. Officially when you look at the loans the banks have granted to the power sector players, giving them a moratorium period is very good in bringing down the cost of debt.

"The fact that they have also dropped the interest rate from nine per cent to five per cent to some sectors would also mean that the cost of funds would reduce, which is quite important at this time.

"Also, the N50 billion to the SMEs is commendable."

Furthermore, she said the intervention for pharmaceutical companies was also essential so as to prevent the spread of the virus.

She added: "The fact that they are going to support the pharmaceutical sector, which controls 0.5 per cent of our GDP, which is very low, however, the first time they are focusing on this at this time is pivotal.

"All, the CBN is doing now is definitely the right thing to do at this time."

On his part, the Head of Research, Afrinvest West Africa, Mr. Abiodun Keripe, also supported the intervention by the central bank.

He, however, called for enhanced liquidity for the banks like what was done in the United States.

"The funding for the healthcare is good given the situation at hand in dealing with COVID-19.

"It is also good that they talked about providing funding for businesses. However, that is just a drop in the ocean because we are a $94 billion economy and that ratio is tiny.

"It is good they are restructuring loans to the oil and gas, it is good they support healthcare which is needed to fight the pandemic COVID-19."

"It is also applaudable they are cutting interest rates for their intervention funds for SMEs, he said.

On his part, the Head of Research at United Capital, Mr. Wale Olusi, said the move was a good response by the central bank.

But, he argued that the central bank had been overstretched in terms of its interventions.

He said: "We have gone all out on expansionary monetary policy before the COVID-19 virus outbreak and we have little or no room to respond appropriately to this new shock in town.

"The response is more or less a consolidation of what we have been doing before, apart from the new support for the health sector.

"As at today, oil price is below $30 and we can only hope it does not continue too long because if it does, the monetary authority is almost out of the options they can use to respond."

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