The Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, has accused the commercial banks operating in the country of lying about why they are not able to lend money to the private sector as they ought to.
Emefiele said this while responding to a question at the 2019 Africa Investors’ Conference (AIC) which took place in London between June 25 and 27. Those who are accustomed to Emefiele’s tirades, will agree that the Governor did not disappoint.
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Sharp response: One of the questions he was asked was why banks are not lending to the private sector. In response to this, he claimed that the CBN was taking the issue seriously and was working on a piece of regulation that would restrict bank investments in risk-free government instruments. According to reports from some of the attendees at the event, the Governor said CBN would aggressively refocus banks to lend and is currently working on regulations that would restrict banks’ participation in zero risk instruments.
If these assertions are true, it means the CBN will issue a policy that will stop banks from investing customer deposits in risk-free instruments like Treasury Bills and FGN Bonds.
He also claimed that the regulations would be out in two weeks and that the decision to issue it was from the Monetary Policy Committee (MPC). The implication of this is that demand will reduce and interest rates for Treasury Bills could rise with banks out of the risk-free fixed income market.
Attendees at the event further grilled him on the common excuse banks give regarding why they can’t lend. Banks often cite the 22.5% Cash Reserve Ratio (the amount of deposits banks own that cannot be lent out) as a reason for not lending to the private sector as they should. His response was brutal.
Someone asked him, “Why not reduce the CRR if it’s too high?” To this, he responded, “Quote me when I tell you that the banks are lying when they say CRR is the issue.”
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According to him, “Even at 22.5%, banks still have high liquidity ratios and the CBN doesn’t feel like banks are being restricted by the current level of CRR.’’ He said he accepted blame for giving banks “too much latitude to operate” felt that banks are too dependent on the CBN.
Also, he claimed that even after a reduction from 30.5% to 25% in the level of CRR in 2017 released N1 trillion in cash to banks, they did not lend to the private sector.
Private sector lending has averaged N15 trillion since January 2017, hovering from N15.9 trillion to N15.2 trillion between then and March 2019.
In a classic example of why he believes banks are lying, he claimed there was a Nigerian bank that lent about N300 billion to 4 individual corporates and ended up in mess.
Off the chains: Analysts and investors who attended the event claimed that the CBN Governor was off the chains as he piled on the banks. Some believed that he could have done much to appease foreign investors as he only reinforced belief that this his second tenor would be more of the same.
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