The Central Bank of Nigeria Governor, Mr. Godwin Emefiele, in this post Monetary Policy Committee interview spoke about the health of banks in the country as well as the impact of the bank’s development finance interventions since the outbreak of the COVID-19. Obinna Chima brings the excerpts
What do you think has been the impact of COVID-19 on the financial health of Nigerian banks?
Ordinarily, what some analysts would say is that as a result of the lockdown, both people and companies would not earn revenue, and because of that, they would not be able to pay salaries, and if they can pay salaries, they won’t be able to repay their loans, and of course if they can’t repay their loans, it would result to non-performing loans in the books of the banks. But, realising that this could be part of the consequences of the pandemic, not just on households and businesses, but also on banks, we took the unanimous decision, supported by our board and the MPC to consider the possibility of granting some kind of provisioning dispensation for banks.
What does that mean? That banks are given the opportunity that, if for instance companies or households that are impacted by the pandemic and can’t pay their loans, that such loans should be restructured with the understanding that truly they have been adversely impacted by the COVID-19 and that they cannot service those loans. We also took the decision to reduce interest rates on CBN intervention facilities from nine per cent to five per cent. We also said that in order to encourage people to come back again in business, that there are those who lost their jobs, that we should able to support them through the N100 billion Targeted Facilities for Households and SMEs. This facility has been granted. We are talking about N500, 000 for somebody who wants to start a petty business and up to N1.5 million for some of them who are going to be undertaking some slightly higher level of business. We also decided that we would grant additional loan facilities even to some of our large companies.
We decided that N100 billion should be set aside for companies that are in the healthcare and pharmaceutical sectors. So, what we have done in essence is to look at ways to reflate the economy, so that people who lost jobs or people who could not pay salaries can come back again. We believe that with the loans restructured, the level of NPLs will out worse remain stable or at best we could even see it coming down. So, how has that affected the financial soundness of the banks? We have data that shows that the Nigerian banking industry remains strategically strong and is able to support the Nigerian economy.
For instance, in June 2019, capital adequacy ratio for the banking industry was 15.3 per cent, but as at August 2020, it remained at 15.3 per cent. NPLs as at June 2019 was 9.4 per cent, but today it is 6.1 per cent. Liquidity ratio was 48 per cent in June 2019, but today it is 36 per cent, and understandable so because we have seen an increase in credit over the last 13 months of about N3.7 trillion to the economy. Return on Equity of bank which was at 24 per cent as at June 2019, today stands at 21 per cent, which we still consider good. Return on bank assets which was 2.3 per cent as at June 2019, is presently at 1.9 per cent, which we still adjudge to be fair. Total deposit of banks have risen from N22.9 trillion in June 2019, to N28.9 trillion in August 2020.
Total loans have increased from N15.4 trillion in June 2019, to N19.3 trillion in August 2020. Also, total assets have risen from N38 trillion in June 2019, to N48 trillion in August 2020. So, these for us are signs that show that as at date, the banking industry remains resilient to support the growth of the Nigerian economy.
But what is your assessment of the impact of the measures that were introduced in March this year to cushion the impact of the virus on the economy?
Like you all know, the pandemic created a global health crisis which ultimately dove-tailed into a global economic crisis. We have reeled out all the actions that we took: interest rate reduction and interventions, restructuring of loans, granting of targeted facilities, among others. And let me repeat myself because I have said so earlier. We provided N100 billion for targeted facilities and today N78 billion has been disbursed to 130,000 beneficiaries. For the N100 billion healthcare facility – N44 billon has been disbursed to 16 pharmaceutical firms and 25 hospitals and we believe this will go a long way in addressing some of our health and pharmaceutical challenges. Out of the N1 trillion agriculture and manufacturing facility that we said the companies should be able to benefit from, we have so far disbursed N216 billion to 53 manufacturing companies, 12 agric-related companies and 13 services projects. On our agric and small enterprises fund, we have so far disbursed to 144,600 beneficiaries a total of N54 billion.
And these are the loans that we said were granted by way of giving the real implements needed, either for poultry, hairdressers or those who are doing fashion. Of course, for the creative industry, we have also granted loans to about 250 yield companies. So, what has been the impact? I will say it has been positive because if these hadn’t come, perhaps, we might not have seen the positive Gross Domestic Product (GDP) growth we saw during the first quarter of 2020 or the somewhat reduced contraction that we saw during the second quarter of 2020. So, I think these things have been quite impactful and we should really commend those who have played an active role and I think I must commend our colleagues in our Development Finance department who have done a great job in this regard.
The Economic Sustainability Plan was benchmarked on an estimated N2.3 trillion out of which the CBN is to intervene with N1.8 trillion. How does the central bank plan to achieve this?
Again, repeating myself, I will say we have already disbursed a substantial sum of money and we would repeat by saying these funds have not been fully drawn and we would like to inform Nigerians that there are available funds at low interest rates. All we need is for businesses and those who plan to conduct business to be involved in economic activities. As government improves the easing on lockdown, we should get back to our businesses, talk to your banks and even as the CBN has been holding meeting with them regularly, for them to understand that the economy must get back on its feet and that we all need to work together to grow this economy. So, we are appealing to businesses to access these funds. For instance, out of the N1 trillion we made available to the agric and manufacturing companies, only about N216 billion has been drawn, which means that close to N800 billion is still available.
You recently said agric loans have grown from one per cent to four per cent and that there is a need to encourage the banks to increase lending to the sector to 10 per cent, how do you think this can be achieved?
You would see that any analyst, looking at the Nigerian economy would say, for us to achieve growth, create employment, we cannot ignore the agricultural sector. That is why you all would observe that since 2015, when President Muhammadu Buhari assumed power, all that he has concentrated on in the area of agriculture, is to say that we must revive the agricultural sector.
The CBN has held itself out over this period and has done a couple of this, either through the Anchor Borrowers’ Programme, to make credit available to our small holder farmers, whether for rice, tomato, maize, sorghum, cassava, fish, among others. These facilities have been made available and these have been responsible for increase in agric credit, from one per cent to four per cent. For instance, in May 2019, loan to agro-services was N324 billion, but as at August 2020, loan to agro-services has gone up to about N430 billion. For crop production, outstanding aggregate loans to this sector was N163 billion as at May 2019. But as at August 2020, it has grown to N294 billion. For cash crops, loan to this sub-sector was just N90 billion in May 2019, but as we speak today, it is N129 billion.
Of course, there are other sectors where we saw loans at N79 billion, but today stands at N91 billion. So, in aggregate we have seen loans to the agric sector rising from about N658 billion to almost N1 trillion, during this period. That is, close the N300 billion loan has been granted to support the agric sector and I expect that with what we are doing to ensure that we support the agric sector, we would continue to appeal to more people to be involved in agricultural activities.
If you are not involved in primary agricultural farming, you can be involved in the business of moving food from farm to markets; you can be involved in processing of the agricultural products; moving the agricultural products to the market and the rest. These would create opportunities for wealth creation, help in growing our economy and also create jobs. The CBN has the mandate to ensure that everything is done to stabilise the exchange rate in the country. It is important for me to address this because there are unfolding events arising from it. Today, whether we like it or not, we are in a global crisis. And usually, when there is a crisis of this nature, because there is pressure on the exchange rate, what we had to do was to adjust the exchange rate and by doing that we have adjusted price.
By adjusting price, there is a need for you to look at how to work on supply and demand. In working on supply, we are seeking for ways to diversify our revenue base in foreign currency and in line with that, we are thinking of how to give more support to those in export business. We would like to encourage them and we need to be more aggressive about that, so that we can grow our foreign currency revenue base. So, there is no need for anybody to go into undocumented export activities in the country. We have seen situations where people get into undocumented export activities and the CBN will be working with the Nigeria Customs Service and the shipping agencies to ensure that when you conduct an export activity, you must fill your NXP forms.
And the shipping lines would not allow you to export your goods unless you fill the NXP forms and if we discover any exporter involved in opening accounts where he did not fill the NXP forms, we would deal with those exporters. We want all the proceeds of exports and foreign currency revenue to go into an account where all of us would see it and it would be visible for everybody. That is on the supply side. On the demand side, you will recall that since 2016, we have been talking about reducing imports, particularly on goods that can be produced locally. And there is a need for everybody to work together to ensure that we produce food that can be consumed in the country.
That is the reason the President, the federal government, the CBN, are all saying we are willing to provide funding for anyone that wants to go into agriculture so as to encourage food production. So, we frown at people who want to import food that can be produced locally. We have heard the President say it severally that the CBN should make it difficult for people who want to take forex to import food. We would continue with a lot of intensity to ensure that this is done. We all need to work together to encourage local production of food. The CBN would come out strongly on those who are involved in smuggling of goods that had been restricted from accessing forex and they would be made to face the law. I am using this opportunity to appeal to everyone to be patriotic.