A new report from the Central Bank of Nigeria (CBN) has revealed that President Muhammadu Buhari-led’s administration has borrowed a total sum of N14.86 trillion from the CBN through Ways and Means Advances since the administration came to power in May 2015.
Federal Government’s total debt from the CBN stood at N648.26 as of June 2015, a month after President Buhari was sworn in. The debt rose to N856.33 billion by December 2015 and N2.23 trillion by December 2016, the CBN data has shown.
“Ways and Means Advances is a loan facility used by the central bank to finance the government in periods of temporary budget shortfalls subject to limits imposed by law.”
Government borrowing from the central bank rose to N3.31 trillion in 2017, representing an increase of N1.08 trillion. Buhari further borrowed N2.1 trillion in 2018 to take total borrowing to N5.41 trillion.
This continues in 2019 as the Federal Government took another N3.31 trillion loan from the CBN to hit N8.72 trillion in debt.
In 2020 during COVID-19, the Federal Government borrowed N4.9 trillion to plug its fiscal financing gap, bringing government’s total borrowing to N13.11 trillion.
In the first half of 2021, the Federal Government borrowed an additional N2.4 trillion from the apex bank to take its total borrowing to N15.51 trillion (N13.11 trillion plus N2.4 trillion).
However, deducting the N648.26 billion debt met by President Buhari from the total debt of N15.51 trillion revealed that Buhari’s administration has borrowed N14.86 trillion in the last six years.
Experts have warned that Federal Government abuse of Ways and Means Advances stipulated at five percent of the previous fiscal revenues could raise risks to macro-stability in the context of weak institutional safeguards that preserve the credibility of policymaking and the ability of the central bank to control inflation.
“The CBN’s guidelines limit the amount available to the government under its WMF to five per cent of the previous year’s fiscal revenues. However, the FGN’s new borrowing from the CBN has repeatedly exceeded that limit in recent years, and reached around 80 per cent of the FGN’s 2019 revenues in 2020,” Fitch Ratings stated in January 2021.
Commenting on the situation, Mr Bismarck Rewane, the Managing Director and Chief Executive Officer, Financial Derivatives Company Limited, said the government needs to securitise borrowing from CBN.
He said, “N15tn is about 45 per cent of total money supply. So, if, for example, those ways and means advances were securitised today, people will have to invest in government securities and it will reduce money supply by 45-50 per cent.
“What we need to do is to actually securitised this formally. But I think that right now, the Federal Ministry of Finance or DMO is paying interest on the ways and means advances. So, the effect is that there is a cost to the borrowing, and the central bank is receiving the interest on it.”
Stanbic IBTC Introduces Smart Loan to Support Customers
Stanbic IBTC Bank, a subsidiary of Stanbic IBTC Holdings PLC, has introduced a Smart Loan digital solution to enable customers who have an account with their Asset Management arm access a loan to enable them meet their medium-term financial obligations.
According to the bank, the devaluation of the naira due to the global economic downturn has reduced disposable income as more naira is required to maintain the current level of expenditure and consumption. This is more so, given that the economy is largely import driven and there is a need for people to access funds seamlessly from their financial partners.
It stated that the Smart Loan, a digital, paperless loan facility will come in handy for many Nigerians, especially those in dire need. The solution will support Nigerians by giving them access to funds while also contributing to economic growth.
The Smart Loan digital facility is available to customers with a mutual fund investment with Stanbic IBTC Asset Management. This enables them to access the instant and quick paperless loan facility of up to N10 million. The lending solution empowers them to meet their financial needs while also maintaining a healthy cash flow.
Oladele Sotubo, Chief Executive, Stanbic IBTC Asset Management, said, “The Smart Loan product is designed to help provide our customers with the necessary financial support of up to N10 million to meet their medium-term financial responsibility, while also positioning them on a path to long-term financial stability. We understand the need for constant cash flow and its relevance to our livelihoods and households.”
Bunmi Dayo-Olagunju, Head, Client Solutions, also said Stanbic IBTC Holdings will continue developing innovative financial solutions to enable customers to achieve stable financial freedom through simple and quick banking solutions accessible to them at their convenience. We are delighted that we can further serve our customers in positive ways that improve their finances through our arrays of financial products.”
Increase in Banks’ Bad Loans Caused by Construction Sector
The banking industry saw a 13.6 percent MoM (month on month) increase in bad loans to N2.76 trillion in August 2021, and the Central Bank of Nigeria attributed the increase to the rising loan defaults in the country’s construction sector.
The construction industry is touted to be under intense pressure due to the rise in the prices of building materials.
The Central Bank of Nigeria said this in its August Economic Report, stating that the NPL (Non-Performing Loans) ratio of the banking industry went up to six percent in August, one percentage point more than the five percent regulatory limit.
According to data from the apex bank, the total credit to the domestic economy went up by 2.2 percent to reach N46 trillion in August, from the N44.99 trillion recorded in July. This suggests that the NPL (bad loans) went up to N2.76 trillion in August from N2.43 trillion seen in July, a N330 billion or 13.6 percent increase.
The big rise in NPLs was explained by the CBN as a result of increased loan defaults in the construction sector, which accounted for about 4.7 percent or N905 billion of credit owed to other sectors in August, going up from 4.6 percent of N879 billion back in July.
The apex bank said the increase in the construction sector’s non-performing loans was due to the increase in process of building materials, which made it more difficult for contractors to meet their debt obligations.
Regarding this development, the Managing Director of Built2Suit Limited – a firm of architects – Ibukun Odu, said that apart from the increase in loan defaults, construction firms may have to turn to layoffs in order to reduce overhead cost.
Odu lauded the correctness of the CBN report, stating that a lot of contractors were finding the period extremely difficult. Odu stated that all the main components have witnessed increases of between 75 – 90 percent. He mentioned cement, which used to be sold at N2500 but is now sold between N4000 and N4200.
How to Apply for CBN’s 100 for 100 PPP Loan
The Central Bank of Nigeria (CBN) recently kick-started the 100 for 100 Policy on Production and Productivity, targeted at private companies willing to apply for a loan to fund a project.
Last month, CBN Governor Godwin Emefiele said that the policy would take prospective beneficiaries through a process of scrutiny before they would be deemed eligible for the loan. Selected companies can apply for loans of up to N5 billion under the 100 for 100 policy.
The CBN will use Key Performance Indicators (KPIs) to evaluate whether or not the company can have a direct impact on the nation’s economy. It was also confirmed that the policy would involve 100 companies in 100 days, before rolling over to the next 100 days. The interest rate on the loans under the policy will not be higher than 5.0% p.a. until February 28th 2022 when it will revert to 9% p.a.
The Key Performance Indicators to be considered by the CBN include: rate of growth in production output, increase in capacity utilization, increase in export volume, increase in export value, decrease in industrial raw material import volume, decrease in industrial raw material import value, and increase in a number of jobs generated.
The companies interested must submit applications to their Participating Financial Institutions (PFIs, i.e. banks partnering with the Central Bank in the policy execution), together with the necessary documents. Some of the documents required for the application include Financial statements, certified copies of the company’s registration with the Corporate Affairs Commission (CAC), three years of audited finances, evidence of the company’s worthiness, at least two credit reports of the company and directors.
Other necessary documents include a business plan of the project for which the loan is being acquired, and a detailed status report on the project’s capacity utilization, production output, efficiency level, employment level, export capacity, and value creation. Companies also need to provide projections of increased capacity utilization, production output, productivity level, employment level, export capability, and value creation in order to represent the project’s economic benefits after financing. Applicants will notify the CBN of submitted applications through a dedicated online portal on the official website at 100 for 100 ppp.
Once the lending bank receives the application, it will conduct due diligence based on business and credit. After that, the bank will forward the applications of the eligible private companies to the CBN for approval by the appropriate Private Finance Initiative Credit Committee.
The CBN will then screen and accept eligible companies for 100 days, before rolling over to the next 100 days. After that, the CBN will release the approved amount to the Participating Financial Institution for disbursement to the selected private companies. The successful beneficiaries will be published nationally for Nigerians to verify with details of the facility granted, operating sector, manufacturing activities that have been financed, and Participating Financial Institution.
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