The monetary policy measures of the Central Bank of Nigeria (CBN)’s led Monetary Policy measures (MPC) are failing to clean and lift lenders balance sheets and also spur growth, but rather leading to a rise in non-performing loans (NPLs), credit restriction and inflationary pressures.
Business Day investigations showed that some banks have exceeded the industry limit of maximum 5 percent NPLs, a situation that is causing serious concerns for CBN.
According to the latest CBN’s Financial Stability Report (FSR), NPLs of banks rose to N1 trillion in 2015.
The breakdown of the FSR released last two weeks showed that, last year, the NPLs of the industry rose by 78.8 percent to N649.63 billion as against N363.31 billion recorded in 2014.
The report attributed the increase to the continued fall in oil prices during the review period as Bonny Light fell by about 60 per cent to $38.22 last year, leading to government austerity measures and some stringent monetary policy measures by CBN, which have almost brought the economy to its knees.
The FSR stated: “Non-performing loans, in the period under review, rose by 3.36 percent to N649.63 billion at end-December 2015, from N628.54 billion at end-June 2015.
“This reflected a 78.8 percent increase from the N363.31 billion recorded at end-December 2014. The NPL ratio rose to 4.86 percent from 4.65 percent. Although the NPL ratio remained within the prudential ceiling of five percent, it trended closer to the upper limit.
“A few banks had NPL ratio above the regulatory maximum limit of five percent; however, this posed no significant risks to the industry.”
Majority of the MPC members at the March meeting observed the limitations of the policy measures to address the problems that have limited intermediation.
Consequently, some of them called for enhancing the structural imbalance and synergy between the monetary and fiscal policies for banks to play their expected roles in the economy.
Sulaiman Barau, a member of the committee, said, “My candid view is that monetary policy alone cannot deliver satisfactory outcomes on all of these variables, hence, the need for fiscal and strong structural policies to complement the actions of monetary authority that we have continued to argue for.
Abdul-Ganiyu Garba, contributing, observed “the lessons of history imply that the MPC has to decide which goal it could most effectively achieve in the short term for it is impossible for monetary policy on its ‘sore legs’ to stimulate growth and deflate the economy at the same time.
The great challenge for MPC is to deliver on the promise of a forward looking comprehensive strategy and for the fiscal and monetary authorities to deliver on a forward looking strategic macroeconomic management framework for Nigeria.”
Adelabu Adebayo, a deputy governor of the CBN said monetary policy response alone would be insufficient to address underlying rising risk to the price level and continuous efforts should be made to fast track fiscal and structural policies to address bottlenecks in production process
“In the light of these multidimensional challenges, what is the logical way forward for monetary policy? As I have always pointed out, a careful diagnosis of the challenges revealed monetary factors could have played some roles but the dominant factors are structural in nature. The point here is that monetary policy response alone would not be sufficient to address the current underlying rising risk to price level but in view of the fact that some forms of monetary factor is at play,” Adebayo said.
Sarah Alade, a deputy governor in her submission observed that efforts should be at promoting growth rather than attacking inflation because of its own medium and long-term effects on the economy. This, she said, could be achieved through targeted diversification of the economy using the critical sectors such as agriculture, solid minerals, education and industrialisation.
“However, it should be noted that development banking would be critical in this pursuit. The issue of the fiscal side is also of paramount importance,” she added.
JOHN OMACHONU
