- Says, distress looms in banks
Central Bank of Nigeria, CBN Governor, Godwin Emefiele has disclosed that the Nigerian economy is at the verge of collapsing following the continued stress it has been contending with in recent times.
The CBN governor who stated this during a press briefing after the Monetary Policy Committee, MPC meeting yesterday also added that many deposit money banks, DBM are likely to go distressed if nothing is done to assuage the current liquidity stress in the sector.
According to him, “The overall macroeconomic environment remained fragile. The economy further slowed in the second quarter of the year, making it the second consecutive quarterly less-than-expected performance.
“Having seen two consecutive quarters of slow growth, the committee recognized that the economy could slip into recession in 2016 if proactive steps were not taken to revive growth in key sectors of the economy.”
Emefiele also explained that the poor performance of the economy is rubbing off on the banking sector thereby exposing some deposit money banks to the risk of going distressed.
“Arising from these developments, there were indications that some of the banking sector performance indicators could be stressed if conditions worsen further.”
He attributed the immediate cause of banking stress to liquidity withdrawals, following the implementation of the treasury single account, TSA policy of the present administration, elongation of the tenure of state government loans as well as loans to the oil and gas sectors.
He pointed out that the aforementioned issues could aggravate liquidity conditions in banks and impair their financial intermediation role, thereby affecting economic growth, unless some actions are immediately taken to ease liquidity conditions in the markets.
Emefiele also disclosed that the Nigerian gross official reserves decreased modestly from US$31.20 billion at end-July to $30.63 billion on September 17 this year.
Speaking on the decision over the monetary policy, the CBN governor said that Cash Reserve Requirement, CRR, has been reduced from 31 percent to 25 percent by the committee, retained the Monetary Policy Rate, MPR at 13 percent, retained the symmetric corridor of 200 basis points around the MPR; and fixed the Liquidity Ratio at 30 percent.
He said that the impact of the persistent decline in global crude oil prices on the fiscal position of Government continues to reflect in rising credit to government.
He also admitted that the initial market reaction to the decision by JP Morgan to delist the country from the bond index had put the growth under severe strains, arising from declining private and public expenditures.
Emefiele, however, expressed optimism that business confidence would continue to improve as the Government continues to unfold its economic plans.
“Some of the reassuring measures of the administration, including efforts aimed at resolving fiscal challenges at the sub-national levels, and the fight against corruption and improving the business environment, would unlock the inflow of foreign direct investment.”
The Committee also underscored the imperative of growing and protecting the country’s foreign reserves and building fiscal buffers in the process of strengthening confidence in the economy, which is essential for promoting growth and stability.