The Monetary Policy Committee (MPC) has given a nod to the Central Bank of Nigeria (CBN)-led N15 trillion five-year Infrastructure Development Company.
The Committee also commended the Federal Government for the approval to establish Infrastructure Development Company, which will leverage local and international funds for rebuilding of critical infrastructure across the country.
This entity, which will be wholly focused on Nigeria and Nigerians alone will be co-owned by the CBN, the Africa Finance Corporation (AFC) and the Nigeria Sovereign Investment Authority (NSIA), but exclusively managed by an Independent Infrastructure Fund Manager (IIFM) that will mobilize local and foreign capital to support the Federal Government in building the transport infrastructure required to move agriculture and other products to processors, raw materials to factories, and finished goods to markets.
The sum of N15 trillion is projected over 5 years for the initial run. The Committee noted with satisfaction the CBN’s immediate work on the updates and timelines for the establishment of this much-needed entity.
On the state of the financial system, the Committee noted the decrease in non-performing loans ratio to 6.4 per cent at end-June 2020 from 9.4 per cent in the corresponding period of 2019, on account of increased recoveries, write-offs and disposals.
The Committee expressed confidence in the stability of the banking system and urged the CBN to monitor the compliance of commercial banks to its prudential and regulatory measures to sustain the soundness and safety of the banking industry.
“In light of the CBN’s continued effort to find innovative ways of using local resources to diversify the sources of the country’s Foreign Exchange Reserves, the Committee welcomed the decision of the Central Bank of Nigeria to develop a Gold Purchase Framework under the Federal Government’s Presidential Artisanal Gold Mining Development Initiative,” the group said.
“The standardised gold bars, which would be purchased in Naira from Nigerian miners and refiners would not only create thousands of jobs for the artisans, but would provide a new sources of foreign exchange accretion to our reserves, and ensure the strength and stability of the Naira”.
Also, a member of the Monetary Policy Committee and Professor of Economics at the University of Ibadan, Festus Adenikinju, said that the CBN’s Staff on the Banking System Stability showed that the banking system remains resilient, strong, and coping well under the current challenging environment.
For him, the Financial Soundness Indicators (FSI) remain solid. According to Adenikinju, the Capital Adequacy Ratio (CAR), and Non-Performing Loans (NPLs) ratio are trending in the right direction. The Loan to Deposit Ratio (LDR) policy has boosted aggregate credit to the economy without impacting negatively on the NPLs ratio. Measures of bank performance like assets, deposits and credits to the economy also continue on a northward trajectory. Banking credit grew, albeit marginally, between May 2020 and June 2020.
His confidence in the banking sector is contrary to Fitch Ratings report, indicating that the Cash Reserve Ratio (CRR) policy being implemented by the CBN will affect banks’ returns and ability to lend. The CRR, which is 27.5 per cent of banks’ deposits kept with the apex bank at zero interest to curb the money supply and keep inflation in check. In a report, Fitch says banks are being punished at a time when most other countries are giving lenders extra leeway to fight the economic fallout of the coronavirus.
Adenikinju insisted that the increase in aggregate credit to the economy in spite of the pandemic suggests that the economy is responding well to current policy measures.
“Stress tests on the banking industry also confirms a resilient sector that is able to survive the effects of COVID-19 pandemic and volatility in the oil market,” he said.
Total banks credit to the economy increased marginally from N46.6 trillion in April 2020 to N46.7 trillion in May 2020. Equity market indicators, like market capitalization increased by 5.83 per cent from N12.0 trillion at end-April 2020 to N12.7 trillion on July 17, 2020.
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