Freshly released guidelines and regulatory measures by the Central Bank of Nigeria (CBN) showed that the apex bank is all out to push for increase productivity, and hence, boost Nigeria’s economic growth.
Against this backdrop, the lender of last resort approved measures to the effect that all deposit money banks (DMBs) would be required to maintain a minimum Loan to Deposit Ratio (LDR) of 60% by September 30, 2019 but subject to quarterly review.
This is meant to encourage lending to Small Medium Enterprises (SMEs), Retail, Mortgage customers which shall be assigned a weight of 150% in computing the stipulated LDR while CBN will provide a framework for classification of businesses that fall under these categories. Accordingly, failure to meet the above minimum LDR by the specified date shall result in a levy of additional Cash Reserve Requirement (CRR) equal to 50% of the lending shortfall of the target LDR.
In addition to the drive to stimulate economic growth, CBN also tweaked the guidelines on DMBs’ access to Standing Deposit Facility (SDF) as it capped the remunerable daily placements by banks at the SDF window at N2 billion (down from N7.5 billion).
The N2 billion, according to CBN, will be remunerated at the interest rate prescribed by the Monetary Policy Committee (MPC) from time to time; however, any deposit by a bank in excess of the N2 billion will not be remunerated.
Meanwhile, total debt figure released by the Debt Management Office (DMO) showed that Nigeria’s total public debt stock for the first quarter of 2019 increased by 2.30% to N24.95 trillion in March 2019 (from N24.39 trillion in December 2018).
The increase in the country’s total debt stock was due to a 2.65% rise in the Federal Government of Nigeria’s (FGN) share of domestic debt stock to N13.11 trillion in March 2019 (from N12.77 trillion in December 2018) as well as states’ share which grew by 3.10% to N3.97 trillion (from N3.85 trillion) in the same period.
Further breakdown of the FGN’s total domestic debt stock revealed that the upward movement in FGN bonds defied the current administration’s debt strategy of subtituting local debt for external debt given its ratio of local debt to external debt which stood at “68:32” to miss its target of “60:40”.
However, it still stuck to its debt strategy of reducing short term domestic stock as total amount of treasury bills fell to N2.81 trillion in March 2019 from N2.89 trillion in December 2018; hence, the long-term domestic debt to short-term domestic debt stock mix marginally shifted to 76:24 in the quarter under review from 75:25 in Q4 2018.
Meanwhile, domestic debt service payment rose q-o-q by 173.25% to N610.28 billion in Q1 2019 from N223.33 trillion in Q4 2018; however, we saw debt service payment moderate y-o-y by 5.18% from N643.63 billion in Q1 2018 despite the rise in local debt stock to N17.09 trillion in Q1 2019 from N15.96 trillion. Hence, implicit interest rate rose to 3.57% in Q1 2019 from 1.34% in Q4 2018 (but declined from 4.03% in Q1 2018 amid a lower yield environment in 2019).
In the external sector, external debt stock increased slightly to N7.86 trillion (or USD25.61 billion at N306.95/USD) in March 2019 from N7.76 trillion (or USD25.27 billion at N307.00/USD) in December 2018. External debt service payments increased to N109.66 billion (or USD357.26 million) in March 2018 from N59.69 billion (or USD194.44 million) in December 2018. Hence, implicit interest rate rose to 1.40% in Q1 2019 (from 0.77% in Q4 2018).
We welcome the continued efforts by CBN to spur economic growth as one of the major challenges of business operators – financing – could be addressed to some degree.
Also, as CBN prioritised the flow of money to businesses in the SMEs, Retail, Mortgage and Consumer Lending space, coupled with the anticipated implementation of the minimum wage, we expect to see improvement in GDP growth from the second half of the year.
Nevertheless, we expect CBN to keep tabs on the inflation rate as the risk becomes imminent.