CBN Contemplates Lowering Investment in FG Securities

• CBN Contemplates Lowering Investment in FG Securities

The Central Bank of Nigeria maybe perfecting a plan to further compel lenders to extend credit to the private sector.

Analysts in the banking sector are saying more lending measures will follow the 60 percent Loan-to-Deposit ratio and the Standing Deposit Facility as the apex bank seem determined to stimulate growth through job creation and improve economic productivity.

Jerry Nnebue and Phillip Anegbe from Cardinal Stone Ltd, said in a note to clients “We believe that the apex bank is likely to introduce additional policies to complement the recently issued regulatory measures.”

The high unemployment rate and struggling economy despite huge profit declaration by lenders is a thing of concern.

Two bank executives with knowledge of the situation said the apex bank is considering putting a cap on how much banks can invest in government securities. However, they were unsure when the apex bank plans to implement the measure.

“The CBN is well aware that raising LDR to 60 percent and capping banks’ interest-generating deposits at N2 billion are not enough to materially boost lending to the real sector,” said one of the sources who didn’t want his name mentioned said.

“The end game is to place a cap on how much banks can invest in government securities. Foreign investors know that this plan is on the table and that’s why banking stocks are selling off over fears that industry profitability will take a hit from such a measure,” he added.

Experts projected that the new directive would erase over N1 trillion from the fixed income market as banks ability to invest would be hurt by LDR policy. But doubt the effectiveness of SDF directive.

Moody’s agency said additional measures are likely given that the Standing Deposit Facility may not be as effective as CBN had hope.

“Assuming banks would lend out amounts above the new N2 billion placement ceiling, the additional lending would be only N5.5 billion per bank, and will likely be less than 1 percent of total loans outstanding,” said Peter Mushangwe, a banking analyst at Moody’s.

Therefore, CBN is likely to complement its 60 percent LDR policy with additional measures to ensure real sector receive adequate funding in the next five years.