Banks: CBN to Boost Domestic Credit

The Central Bank of Nigeria (CBN) is to boost domestic credit by facilitating funds to banks through Development Financial Institutions (DFIs).The Deputy Governor, Banking Operations, CBN, Tunde Lemo, said in Lagos yesterday that it was one of the new moves by the banking watchdog to ensure that banks resume lending to the private sector. The move by CBN to boost domestic credit came hours after Minister of State for Finance, Mr. Remi Babalola, said that Nigeria was on track to meet the target of 6.1 per cent and 11.2 per cent for Gross Domestic Product (GDP) inflation respectively this year.
Speaking at Stanbic IBTC Investor’s Conference, Lemo pointed out that funds from the DFIs would be deployed by the banks to refinance their deposits that are mainly short-term, to enable them reach out to more prospective borrowers needing longer tenored facilities.

DFIs, which are spread globally, are financial institutions that provide long-term finance for enterprises and countries for development purposes.
Lemo also said the CBN is encouraging the development of corporate bonds to take care of the long-term finance needs of companies and by that enable banks to concentrate more on short-term lending they are cut out for.
He said that with the proposed Asset Management Company (AMC) buying up the bad loans of the banks, they would regain financial capacity for credit.

According to the deputy governor, monetary policy objectives as regards interest rate, inflation and exchange rate are expected to remain the same. He stressed that changes in the monetary policy rate (MPR) is not likely in the next months.
Meanwhile, Babalola has said that Nigeria’s macroeconomic environment is bright and the outlook promising with significant progress already made in addressing the challenges in the Niger Delta and sustained improvement in the price and production of oil.

“The expected 2010 real GDP growth rate of 6.1 per cent and a target inflation rate of 11.2 per cent remain feasible as the government increases investments in critical infrastructure, implements sectoral reforms, maintains macroeconomic stability and puts in processes that would ensure lasting peace, security and development in the Niger Delta,” he said.
Babalola disclosed that the Federal Government would soon commence the implementation of the 2005 power reform. The implementation of the reform, which was initiated by the administration of former President Olusegun Obasanjo was halted by the President Umaru Musa Yar’Adua government.

The Minister said: “The implementation of the power reform will commence soon to enable the government meet its power targets for the year.”
He pointed out that government plans to add 5000 megawatts of electricity to what is available at present, before the end of 2010. He added that the country’s transmission and distribution networks are in a poor state and require complete overhaul.

Nigeria’s installed power generation capacity, said the minister, is 6,000mw while the current available energy output is around 4,000mw due to non-availability of gas. However, there are reports that the amount dropped to 2,700mw in January and has now increased to 3,362mw.
Assuring Nigerians that the government was working hard to ease the shortage of gas by various means including appropriate pricing, the minister said government’s long-term power target was to meet the estimated need of the country put at about 12,000mw.

According to Babalola, fiscal developments during 2009 continued to support macroeconomic stability as well as increased spending on critical infrastructures, adding that the trend was expected to be sustained in 2010.
To ensure improved efficiency, effectiveness and productivity of government’s expenditure, he disclosed that the Budget Office had designed a framework to monitor and evaluate the 2010 budget performance.

He said between 2006 and 2008, Nigeria spent over N1.2 trillion on subsidies for petroleum products.  In 2009 alone, petroleum subsidies accounted for over N600 billion; almost equivalent to the total capital budget of the country, he said.
“Full deregulation of the oil and gas sector remains very imperative,” said the minister.
In 2010, he continued, there would be extensive focus on monitoring and tracking the impact of resources utilised as part of ongoing reforms to introduce a comprehensive performance-based budgeting system. Also, quarterly budget monitoring and evaluation reports would be published in line with the provisions of the Fiscal Responsibility Act 2007, he stated.

“A review of tariffs and fiscal incentives is being undertaken to boost productivity in the real sector and facilitate rapid economic growth. The government is establishing special intervention funds to provide credit facilities for commercial farming and support necessary agro-processing linkages to sustain the industry,” he said.
The Federal Government’s policy direction is clear, said Babalola, pointing out that “government would move away from being an exclusive provider to a facilitator in partnership with the private sector”.

The priority of government in 2010, he said, would be enhanced focus on improving the efficiency of government expenditure and adopting belt-tightening measures in line with resource constraints.
According to the minister, upward pressure on the country’s sovereign ratings could emerge if progress was made in the key areas identified by government.

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