Huge NPLs, Fragile Economic Growth to Top Agenda at MPC Meeting Monday


Kunle Aderinokun

When the Monetary Policy Committee of the Central Bank of Nigeria (CBN) meets tomorrow and Tuesday, issues bordering on huge non-performing loans in banks and weak economic growth would top the agenda for discussion, analysts have suggested.

The forthcoming MPC meeting, which is the 258th edition is coming after the economy exited recession it entered in the second quarter of 2016, recording 0.55 per cent GDP growth rate, which is considered a weak one. The meeting would also hold days after a report revealed that the top five banks were responsible for 47 per cent of the impaired credits in the industry. Just about the same time, two MPC members, namely, Dr. Doyin Salami and Hassan Balami, expressed concerns over the high level of non-performing loans in four banks.

Executive Director, BGL Capital, Femi Ademola, said the concerns raised by the MPC members on the NPLs were important ones that needed to be dealt with. According to him, “The importance of the banks to the financial system and the entire economy as a whole and past experience suggest that we do all necessary to prevent any systemic problems.”

Ademola, who pointed out that, “We must also consider that this situation is happening at the same time when the economy was in recession, noted that, “The fall in oil price, the depreciation in the value of the Naira and the high inflation affected the capacity of borrowers to meet repayment obligations.”

“However in the last few months, we have been experiencing a stable and acceptable oil price and exchange rate and also a moderating inflation which resulted in a positive GDP growth in the second quarter of 2017.”

Besides, stating that the reported growth of 0.55 per cent is very little, the economist, noted that, it signaled that the country was out of recession. “This is expected to be followed by initial recovery in which business activities should improve, earning capacity restored and obligations settlement capacity strengthened.”

Ademola posited that, “I will therefore expect that the MPC will do whatever needed to support the positive but fragile economic growth through liquidity stimulating policies that would also help the banks to remain strong. A lowering of the MPR should be encouraged at this moment.”

In his own view, the CEO, Global Analytics Consulting, Tope Fasua, expected the MPC to hold all rates steady for now, because “Inflation is down to 16.01 per cent and may be maintaining a downward trajectory howbeit slowly.”

While recalling that, the economy recently exited recession and GDP growth has recorded a fragile 0.55 per cent, Fasua doubted, “if this is the time to toy with volatility.”

According to him, “The MPC may seek to observe trends for at least one more quarter, in spite of rising NPLs. The way to tackle NPLs is not to further sterilise bank deposits by increasing liquidity ratio or cash reserve, but to be firm with supervision and ensure that insider-related loans are outlawed.”

“Most of the bad loans we understand, are sitting with powerful directors of the banks. It may be a good time to seek presidential approval and ensure that they bear personal liability like was done in 2009. There should be consequences for ruining a bank and jeopardising depositors’ funds. Creating AMCON 2 as being suggested in some quarters, while AMCON 1 still struggles for resolution, is equivalent to taking the whole country for a ride,” he reasoned.

To the Director, Union Capital Ltd, Egie Akpata, the MPC is unlikely to make any changes to its key benchmarks. “Inflation is still above 16 per cent, falling at an anaemic pace and is well above CBN target inflation of 6-9 per cent. This means the hawkish stance of the MPC has to be maintained for now and MPR retained at 14 per cent.

“However, CBN is already using other market tools to moderate treasury bill rates (particularly at the 1 year end) and if this is sustained, the risk free rate (T-bills) will keep dropping. These rates are more relevant for banks to price the opportunity cost of their loans to customers,” he said.

Akpata believed, “The MPC might leave the door open for a symbolic MPR cut in November if by then, all T-bill discount rates have fallen to around the 14 per cent level, FX reserves keep rising and the I&E window rate for USD is still under N370.”

The same position was held by the CEO, The CFG Advisory Ltd, Adetilewa Adebajo, who said, “While we have sustained momentum on the Downward Trajectory for inflation, it is still at 16 per cent and base interest rate is at 14 per cent, so there is no incentive yet for a rate cut. We expect the Status Quo to be maintained.”

However speaking on the massive impaired credits, Adebajo stated that, “The problem of NPL is not a new one and is more severe than reported. The real problem is that 45 per cent of the NPL are insider related according to the NDIC. Liquidity ratios are also narrowing and banks will eventually need to shore up their capital base.”