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World Bank Warns CBN on Policies That Will Harm Commercial Banks


CEM REPORT | The Central Bank of Nigeria (CBN) has continued to provide funding through intervention schemes to various sectors of the economy as a means to revamp the economy.

But the World Bank has warned that this low-interest loans and intervention schemes have adverse effects on the commercial lenders.

The World Bank says commercial banks lend at a risk-adjusted pricing basis and the CBN heavily subsidized funding to certain sectors undermines the commercial banks.

The body made this statement in a document titled ‘Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual.’

The statement adds that Nigerian apex bank didn’t painstakingly evaluate the impact of additional interventions whilst it surged credits to the private sector.

“The CBN’s continued provision of heavily subsidize seed funding to certain sectors undermines commercial banks that lend on a risk-adjusted pricing basis and needs to be dialled down.

“CBN disbursements are growing in funding the private sector, with the CBN’s share of private sector credit rising from about 6.5 per cent at end-2019 to 10 per cent by end-2021. Although some of the COVID-related tools deployed by the CBN are being phased out (e.g., the moratorium on principal repayments on CBN-funded credits lapsed in March 2022), the Central Bank has introduced new intervention facilities without a publicly available evaluation of their impact.”

The bank added, “The CBN also stepped up disbursements and kept the monetary policy rate unchanged at 11.5 percent from September 2020 until May 2022. On March 15, 2022, the CBN extended the five per cent per annum interest rate on its development finance intervention funds for one more year through end-February 2023.”

This is coming just as the CBN monetary policy committee’s raised the benchmark monetary policy interest from 11.5% to 13%. A decision that will see an increase in lending rates across the board.

Although, these several CBN interventions reflects a goal to drive economic growth in key sectors with an interest rate of 5% while allowing increases rate in other sectors.

However, inflation driven by high energy cost and rising food prices and insecurity have continued to hit the most funded sectors; power and agriculture.

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