Emefiele: Loan Forbearance Will Enable Companies Survive Covid-19

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Godwin Emefiele
Godwin Emefiele

Central Bank of Nigeria Governor, Mr. Godwin Emefiele, in this interview after the Monetary Policy Committee meeting spoke about the state of the Nigerian banking sector, the recent exchange rate adjustment as well as the reason behind the aggressive development finance activities by the Bank since the outbreak of the pandemic. Obinna Chima and James Emejo bring the excerpts:

How strong is the banking sector today, in the light of the massive disruption caused by the pandemic and some have said that the forbearance granted banks to restructure loans for their customers is like postponing the dooms’ day. What is your take about this?

Let me say that the Nigerian banking system remains very strong and resilient. I will say that unlike in other climes, the Nigerian banking industry appears to be one of the well-regulated industries in the world today. We have prudential ratios that has been prescribed for the banks and they are required to ensure that they abide by those prudential ratios. For instance, the non-performing loans (NPL) ratio, the capital adequacy ratio and the liquidity ratio. To demonstrate the fact that the Nigerian economy remains sound and resilient, as at May 2019, non-performing loans ratio in the industry was 11.1 per cent. As at June 2020, NPLs have dropped to 6.41 per cent. For capital adequacy ratio which is a ratio that measures the size of capital that banks deploy into real assets, as at June 2019, capital adequacy ratio was 15.2 per cent, but as at June 2020, it remained flat at 15 per cent. For liquidity ratio, as at August 2019, liquidity ratio was 48 per cent, but as at June 2020, liquidity ratio had dropped to 37 per cent. Yes, liquidity ratio has dropped and I will say understandably so because for instance, you will note that from around July 2019 to June 2020, gross loans and advances into the economy as a result of the CBN’s loan to deposit ratio had increased by N3.33 trillion from N15.6 trillion from June 2019, to N18.9 trillion as at June 2020. And these loans were advanced to some of the productive sectors as I read in the communique. For instance, the manufacturing sector received N815 billion; retail and consumer loan sector received N615 billion; the agric, forestry and fishery sector received N255 billion; general commerce received N221 billion, and information technology and communication received N208 billion. What we are saying is that in spite of this large sums granted in a year from N15.6 trillion to N18.9 trillion and the prudential ratios still looks so strong, this is clear indication that the Nigerian economy and the banking system remain very strong and resilient and able to support economic development of Nigeria. The second question is that some of my critics have said the forbearance granted by the CBN to banks to restructure loans for customers is like postponing the dooms day. Let me say that the health crisis occasioned by the pandemic itself would have resulted in doomsday for the banking industry and by extension for the economy. Ordinarily, the CBN is not in the business of granting forbearance because it has the prudential guidelines. When banks comply, we gives them a tick, and when they don’t comply, we apply the necessary sanctions. But it was out of the need to ensure that the CBN and monetary authorities is seen to be working with the fiscal authorities and government to see to the resolution of the problems arising from COVID-19 and drop in commodity prices, that the CBN should be seen to offer some forbearance to banks and by extension to their customers.

Now listen, if the CBN didn’t ask the banks to offer some forbearance to their customers, the loans would go bad by our prudential ratios and the loans go bad and get classified, the banking system begins to wobble. But by the forbearance, what we are saying is that if for instance somebody took a loan and he was servicing his loan but as a result of the crisis he can no longer service his loan because revenues are not paid, it behooves on the banks with the support of the CBN to say let us restructure the loans from maybe two years to four years or from four years to six or seven years, thereby reducing the outlay that would be used in repaying the loan or bring down the interest rate on the loans so as to make life meaningful for the customer. And indeed because some of these customers have not earned revenue over this period, shouldn’t we have granted them additional loans so that they can kick-start their businesses again? Ladies and gentlemen, I am telling you that most of us who have been watching television have watched on CNN companies close down, companies going into bankruptcy abroad. Is it Brook Brothers? Is it JC Penney? Also, some of the luxury and consumer shops abroad have gone into bankruptcy because they are no longer earning revenue. But here in Nigeria, I am yet to read about any large corporate or conglomerate going into bankruptcy. Now, on the strength of this forbearance, I would say that so far in Nigeria, 22 banks out of 27 of them have come to the CBN to restructure loans of about 35,640 of their customers and this restructuring is just about N7.8 trillion which constitutes 41 per cent of the total industry loans. Total industry loans, don’t forget is N18.9 trillion which we still consider a little bit low because we are still going to continue to encourage the banks to see how they can grant more forbearance to those customers. Perhaps if we see forbearance rising to about 60 to 65 per cent, we get a little bit comfortable that yes we have really been able to turn the corners by assisting businesses to get over their business and then come over again back to life like. You can imagine a man or somebody who owns a school who took a loan from a bank and for two terms he has not earned school fees because children are at home and have not paid school fees. If these children are at home and they have not earned revenue, then it is just sensible and reasonable to expect that that school will not be able to service its loans. If the school cannot service its loan then what we encourage banks to do is extend or restructure the loan, make repayment a little bit friendlier for the proprietor of the school. Indeed, grant him some more working capital for him to be able to restart his business when school starts. So what are we saying? That he can pay some of his teachers while the children are at home. Then when the children are back, he can begin to earn school fees again and revenues can come even if he wants to increase his school fees at that time even the parents can understand, the authorities will understand. So those are the things that are involved in this restructuring. So when somebody or naysayer say granting the forbearance postpones the doomsday, indeed, it completely helps us to resolve a doomsday scenario because what you are trying to do is to say what do we do to get companies and businesses and institutions alive in the wake of this pandemic.

The CBN recently adjusted the naira exchange rate against the dollar. What should local and foreign investors expect from this exercise?

Like you know, we have always tried as must as possible to see how fast we move and this started from even 2016. We started a gradual programme of unification of the exchange rate closer to the NAFEX and what we did as a result of the crisis was the fact that no doubt there’s dollar shortage, but I still need to underscore the fact that Nigeria’s reserves still stands at $36 billion today which is strong. Indeed, Nigeria has not even touched the $3.4 billion loan it took from the International Monetary Fund (IMF) which is a sign of prudence and being cautious to say let’s be prudent in spending our money. So, it’s an adjustment process. When somebody says what next, I can say that the market is stable right now at about N386/ N387 and sometimes hovering towards N390 and it is understandable and it would go up and come down. We believe as dollars become more available and the liquidity in the market becomes more and more, what you’ll find is that the rate will appreciate and come down to a level we think is at par with our exchange rate mandate and practices

You have done massive interventions in the economy to cushion the impact of the Covid-19. Do you have any feedback as to the impact so far of the interventions?

When the Covid-19 struck, we put on the table, a couple of intervention facilities. Firstly, we said we were making N50 billion available to support households and SMEs that are impacted adversely by Covid-19. Secondly, we said for the health and pharmaceutical companies, we are putting on the table, N100 billion. To support the agricultural and manufacturing sectors to also remain business, we also put on the table N1 trillion in intervention facilities. And I can say that as at today, the update as at today is that over N152.9 billion has been disbursed to 61 manufacturing companies, out of the N1 trillion. Also, 20 healthcare projects have been funded to the tune of about N26.278 billion out of the N100 billion.

Under our AGSMEIS, the CBN has also funded 11,613 beneficiaries with over N41 billion. This is different from the household facility. This AGSMEIS fund is like people who want to go into small scale poultry, setting up a barbing salon, and we make it possible for you to be able to get the tools you need to go into your business and these are the micro and small businesses that badly need access to credit in the economy. Also, out of the N50 billion that we set aside for the household and MSMEs that are affected by the Covid-19, we have so far disbursed to over 92,000 people close to N49.195 billion. Indeed, the board of the Bank and the MPC endorsed the fact that we might even need to increase the household and MSMEs’ facility to accommodate more of the households and businesses so that they can easily recover from the crisis and get back into their micro businesses. So, that asking for the impact must understand that the fact that inflation is moderated, yes it is rising, by 10 basis points in a month, but we saw one of the PMI indices even improving from 26 to 35 index points. That is a sign that rather than going down, it has started to reverse upward. And we do think that as we deploy more resources to support businesses, even the PMI for manufacturing sector, we believe very soon would also reverse back in the positive territory, so that we can begin to see the type of positive growth we expect for our economy.

Last week, President Buhari launched the CBN Gold-buying programme. How will this impact on the country’s external reserves?

Luckily Nigeria happens to be one of the countries in the world endowed not only with human resources, but also by material and mineral resources and gold being one of them. Nigeria is endowed with gold, Columbite, tin, iron ore. So, what we are trying to see is how to put to good use some of these mineral resources for the good of our country. So, what is the programme? As you know today, there is banditry in Zamfara state, occasioned by this. We also have gold, not only in Zamfara, in Kebbi, Niger, Kaduna and some other states in the country. And we are saying there is need to encourage the artisanal miners so that when they dig out the gold, or when they mine the gold, that we should make life difficult for those who want to illegally transport or steal the gold out of the country, thereby shortchanging the artisanal miners. What would we do? Of course, the Federal Ministry of Solid Minerals has already licenced refineries or gold-buying and selling agents. Those agents can access facilities from the CBN, take those raw gold abroad until we have our own gold refineries, bring them back and then we pay them naira that is benchmarked along market rate. It is a win-win for us because we are able to use naira to buy refined gold and store in our vault to increase our forex reserves. With this, we are truly diversifying the base of the Nigerian economy from just oil into non-oil sources of revenue. That is what we are doing and I am optimistic. It is an interesting vista for Nigeria and every right-thinking Nigerian should give support to this programme.