August 17, 2020 / 09:10
AM / by FBNQuest Research / Header Image Credit: Medium
The monetary policy committee (MPC) voted by eight to two in July to hold the policy rate unchanged at 12.50%. A reading of members' personal statements, however, tells us that a good number felt easing should be the response to recession. They resisted the temptation because they were concerned about rising inflation and/or wanted to see the impact of the rate cut in May and the CBN's many credit interventions. One prominent member commented that easing would result in a negative policy rate in real terms. Of the minority, one member voted for a 50bps cut and the other a 100bps reduction.
CBN staff estimates for growth this year see a modest contraction of between -1.30% and -1.65%. The IMF and World Bank projections from June are worse, at -5.4% and -3.2% respectively. Our own expectation remains -3.3%.
The staff estimates should be seen in the context of the pick-up in credit extension. The gross figure increased by 22% or N3.46trn in the 12 months to June 2020. According to one statement, new credit in June alone amounted to N770bn for 93,000 new borrowers. The increases are largely the result of the CBN's tightening of the loan-to-deposit ratio for banks and of its own interventions at below-market interest rates including those launched for SMEs, healthcare and manufacturing in response to Covid-19.
Several members make the point that the new credit has not prevented the latest improvement in the NPLs ratio from 6.6% in April to 6.4% in June.
The latest reading for the ratio reflects the CBN's policy of forbearance in the light of the virus. We learn from the statements that as at 20 July a total of 22 banks had submitted requests to restructure 35,600 loans, equivalent to 42% of the industry's total loan portfolio.
On the fiscal side we see from the statements that the FGN budget deficit in January-May was N2.4trn. The revised and approved budget projects a full-year deficit of N5.0trn.
One member argues for an amendment to the Fiscal Responsibility Act 2007 to boost the take from government departments and agencies. Rather than deposit 80% of their operating surplus in the consolidated revenue fund, he suggests that they transfer 25% of their revenue.
There is little mention of fx other than the observation that the weakness of the oil price and the stance of foreign portfolio investors have together brought pressure on the CBN's arrangements.
Without citing the source, one member notes that crude production had fallen from 1.75mbpd in May to 1.52mbpd at end-June due to the shutdown of the Bonga oilfield and the steep cut in Nigeria's OPEC quota. We assume that the figures exclude condensates.