The CBN has extended the interest rate forbearance it grants to borrowers of some of its intervention funds by one year. The CBN charges 9% for the loans but reduced it to 5% when the pandemic struck in 2020.
The apex bank had extended the rate cut by one year when it expired in March 2021. However, the central bank has extended the rate again for another year after it expired in the previous month.
This is contained in a circular to all banks and other financial institutions by the central bank titled, ‘Regulatory forbearance for the restructuring of credit facilities impacted by covid-19.’
According to the circular, which was signed by the Director, Financial Policy and Regulation department, Chibuzo A. Efobi, the extension takes effect from the 28th of February 2022.
The extension is following the announcement of the CBN during the last MPC communique reading that the non-performing loans ratio (NPLs) had dropped to 4.84% in February 2022 from 4.9% recorded in December 2021, which is the lowest recorded in a long time.
Notably, according to the MPC communique, while NPL ratio dropped further, liquidity ratio remained above its prudential limit of 43.5% as of February 2022, while Capital Adequacy Ratio (CAR) moderate slightly to 14.4% in the same period from 14.5% recorded in December 2021.
Excerpts from the circular
The circular reads; “further to our circular dated March 3, 2021 (Ref: FPR/DIR/PUB/CIR/01/001) on the above, the Central Bank of Nigeria (CBN) hereby extends the 5% per annum interest rate on all CBN intervention facilities for one year. This takes effect retrospectively from the 28th of February 2022.”
What this means
The recent extension by the CBN means that companies who secured intervention funds from the apex bank or through any of its on-lending banks will continue to service the loans at an interest rate of 5% per annum instead of 9%.
Although this move helps small businesses in the country to continue managing their cash flow, it means the CBN will record a reduction in its income extended under such facility.
Regulatory forbearance is a widely adopted concept during an economic crunch and it is meant to help stimulate businesses. For example, the president of the US, Joe Biden recently extended the Federal Student loan forbearance till August 2022 as over 37 million borrowers have not had to make payments on their loans since March 2020.