The Central Bank of Nigeria (CBN) and the commercial banks are to start channeling the Cash Reserve Requirement kept in the apex bank vault to agricultural and manufacturing lending at single interest rate of nine per cent.
This was the outcome of the Bankers’ Committee meeting Thursday in Lagos as announced by the trio of Mr Ahmed Abdullahi, the CBN Director of Banking Supervision, Mr Segun Agbaje, the Managing Director of Guaranty Trust Bank and Mrs Yemisi Edun, the Executive Director, Finance, of First City Monument Bank (FCMB), According to Abdullahi, the loans will only be available for job creation and expansion plans.
His words: “The idea is to have job-creating activities in the economy and also to bring interest rates down within the economy. Although agriculture and manufacturing are the initial sectors that are being considered, a bank can apply if there is a job-creating sector that the bank is operating in, it may be considered. The whole idea is to bring down interest rates, create jobs.
“For CRR refund, that is part of the idea. At the moment, banks funds are held under CRR and they are not being used.The idea came up that we can refund the CRR to a bank that has engaged in lending for a new project or for the expansion of an existing one in the agricultural or manufacturing sector as a way of utilising the CRR.
Anytime a bank lends to manufacturing or agricultural business at a rate that the CBN has prescribed, it will have its CRR refunded to it, up to the amount that it has lent.”
In her comment, Mrs Edun, described the directive as a win-win situation.
“This is very positive for the economy and also positive for banks because the banks will be able to access these funds and be able to earn on it. It will be coming as single-digit rate then it will be positive for the economy. For now, what will happened is that it will be channeled to agric sector and manufacturing. It is for expansion and for creation of jobs”, she stated.
As for the Commercial Paper to be sold to the banks for them to get the single digit loan, Agbaje said its guidelines would be out soon.
His words: “You heard of the Commercial Paper or bonds that will be issued..The guidelines will come out very soon, The impacts of this is two fold, one, it needs to stimulate certain sectors. And it is going to serve the agiculture and manufacturing. So it will allow people to do Capex, which is for long term; it will give people single digit interest rate loan because the bond is going to expire 10 years. On the part of banks, the Central Bank is going to be very gracious and said to these two sectors. If you have companies that are doing new capital expenditures, expansion to your factories, you will be able to lend to them using some of those things at 9 per cent, using short term loans , the seven –year loans, two-year moratorium on principle.
“This means also it is probably the first time in the history of this country that manufacturing would be able to take fixed interest rate loans for seven years, which means they will be able to plan and all forms of risks will be taken out. I think these are very laudable steps towards improving and growing an economy.
I think the stable macro will allow the central bank and the Banking Committee to start taking meaningful steps toward stimulating the economy.”