The Central Bank of Nigeria has loaned out about N923 billion to select sectors of the Nigerian economy through deposit money banks. According to data obtained from the website of the CBN, loans to commercial banks meant for on lending to select sectors have more than quadrupled in the last 5 years growing from about N294 billion at the end of 2011.
The data also shows CBN lending through commercial banks has risen more than 4 times since Emefiele became CBN Governor. The CBN is now seen by some analyst as a major player in financial sector doling out trillions of naira in credit through several developmental efforts. Commercial banks lending to the private sector stood at about N16 trillion in August 2016 according to CBN Data. The CBN’s on lending through commercial banks is now about 6.2% of private sector lending in 2016 compared to 3% in 2010. Including intervention funds via the BOI, Power and Aviation Sector, Agriculture takes this percentage to about 12%. The CBN is apparently the new bank in town.
CBN Loans and advances quadruples
A cursory overview of the CBN’s balance sheet also shows loans and advances on the balance sheet of the CBN has grown from about N795 billion (gross of provisions) in 2011 to about N6.4 trillion in 2015. This also confirms the Central Bank’s role as an active lender in the economy has increased in the last couple of years( particularly since Emefiele took the reigns as the Governor of the CBN).
The CBN has a mandate to play developmental roles in the Nigerian economy, however the level at which it is currently doing so is unprecedented. CBN’s balance sheet has expanded from about N6.7 trillion in 2010 to about N15.4 trillion in 2015. They have funded this expansion through CBN’s monetary policy interventions such as its open market operations, TSA and other deposits held on behalf of the government.
The funds are then channeled towards several of its interests such as AMCON, lending to customers (which ironically is collateralized by the treasury bills that the CBN sells), loans to Bank of Industry, loans to banks with financial challenges etc.
Critics of the CBN’s intervention programs believe it disrupts the financial system. On one hand, the CBN mops up cash from the economy at rates as high as 18%pa and then lends back to the economy at about N10% (via intervention funds) or via investments that it might likely never recover. Economists believe this causes a disequilibrium in the economy as the funds are not thought to be channeled to core areas that will have an incremental impact of GDP.
For example, AMCON which owes the CBN over N3 trillion in bonds used the money to purchase toxic assets from banks which actually doesn’t create new assets. Billions spent on intervention funds, such as in the power and aviation sectors are also mostly used to repay loans to banks and payback backlogs of payable to suppliers and other creditors. Only funds available to the Agricultural sector and to SME are thought to have a developmental impact on the economy and may have positive effects on the GDP. Nevertheless, total loans are about N165 billion with N125 billion and N40 billion to the Commercial Agricultural Credit Scheme and the MSME’s respectively.
Nigeria currently faces a foreign currency crisis that has seen the dollar gain over 180% against the naira (using black market rates) in the past two years since the largest oil price drop in over a decade. Nigeria is also projected to end 2016 at a negative GDP growth rate of 1.7% and could see inflation touch the 19% levels at the end of the year.