Thursday, September 06, 2018 4.30PM / Proshare WebTV
In a recent edition of the Proshare WebTV economic discourse, Tope Babalola of the economy desk speaks on the initiatives of the Central Bank of Nigeria; the Differentiated Cash Reserves Requirement, DCRR And Corporate Bonds initiatives designed to incentivize Deposit Money Banks (DMB) to increase lending to key sectors like Agriculture and Manufacturing that can stimulate economic growth.
According to him, “The CBN in several times had always emphasized that our cash deepening ratio has been narrow, so therefore the DCRR and Corporate Bond initiatives are an attempt to deepen credit debt.”
“It also shows that the central Bank with the corporate Bond is also trying to stimulate what many people refer to as supply following finance, which is addressing the challenge of a captive money market dominated by the fiscal authorities to stimulate both growth and also reduce the level of unemployment in the country”.
He explained further that it was not a complete shift in monetary policy for Nigeria, but a move from targeting inflation to an eclectic position that looks at growth and unemployment.
“Considering the fact that the Cash Reserve Ratio is tied to base money, reducing CRR with the DCRR will allow banks to give fresh capital to businesses”.
Tope noted that CBN was tweaking the CRR in order to create more capital with Cash Reserve Ratio, which is important especially in an economy where unemployment is very high.
Speaking further on the objective of the DCRR and CB to address the issues of credit to the real sector of the economy, especially vital sectors like Agric and Manufacturing, the analyst listed three issues for consideration;
1.The need to address the structural factors in the Nigerian economy, which in one way or the other poses largely symmetrical risks. This he posits affects how credit can be accessed in the country.
2.He asserts that in creating some of this credits, banks will also have to look at how they rotate their asset over time.
3.From the fiscal side, Tope Babalola opines that it will give policy makers an opportunity to look into the Local content policy, Backward Integration policy and the Import Substitution Strategy to improve supply slide economics.
4.He is of the view that top priority should be given to sectors that can drive Nigeria’s economic diversification in terms of export revenue.
Tope retains the fact that the structural issues in the economy will be the major headwind to the success of the new CBN initiatives.
The DCRR facility would allow Banks to access part of their CRR deposits kept with the CBN, in providing credit financing to greenfield (new) and brownfield (expansion) projects in the real sector (particularly Agriculture, Manufacturing and other growth & employment stimulating sectors) for a minimum of 7-years at maximum interest rate of 9.0% and with a 2-year moratorium.
On the other hand, the CBs funding facility allows the CBN to invest, alongside the public, in CBs issued by large/triple-A rated corporates for a minimum tenor of 7-years subject to the intensified transparency requirements for Triple A-rated entities.
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