CBN’s intervention war chest holds N317bn in reserves

By Moses Obajemu

• Apex bank cooking up new strategies for 2020‭  ‬
• Targets remain critical sectors driving growth

The almighty developmental intervention war chest of the Central Bank of Nigeria (CBN) has N317 billion in what it calls “special intervention reserve” (SIR) as at the end of October 2019, down from N344 billion during the same period a year ago 2018.

In the 12-month interval, according to CBN data obtained by business a.m., the CBN and the participating banks had drawn the sum of N24 billion to intervene in the country’s highly critical and preferred sectors in line with the objectives of the SIR.

But the huge war chest in the SIR shows the effect of foot dragging by participants, especially banks, who since it was set up, have not found it attractive to push it as many had expected at the onset.

The SIR was set up by the CBN with banks expected to contribute to the reserve in order to qualify to access it for onward lending to their customers.

CBN, as part of efforts to stimulate output growth, enhance value addition and engender productivity in the economy, established Real Sector Support Fund (RSSF) to intervene in some critical development issues.

At the inception of the fund, banks were to access the fund at three per cent and on-lend it to small businesses at nine per cent. It was later reduced to one percent for the banks for them to lend at nine percent.

However, banks more or less were indifferent to the fund because of their insistence that the six per cent margin was not enough to cover the assessed risks inherent in lending to the targeted sectors, hence they shunned the funds.

The RSSF is scripted to channel more facilities to priority sectors of the economy, assessed to have sufficient employment capabilities, high growth potentials, increase accretion to foreign reserves, expand the industrial base and consequently, diversify the economy.

In the new scheme, it will be used to support start-ups, as well as expand existing enterprises.

The facility specifically targets improved access to finance by the agricultural value chain, manufacturing, mining, solid minerals activities and other strategic sectors of the Nigerian economy.

The initiative rules out any support for trading activities, while according top priority to projects with high local content, import substitution, foreign exchange earnings and huge potentials for job creation.

The RSSF will have a maximum tenor of 10 years, depending on the complexity of the project, which means that each project tenor would be determined in relation to its cash flow and life of the underlying collateral.

It would also allow for moratorium of one year in the loan repayment schedule, while interest rate will still remain at nine per cent yearly.

Since the SIR was set up in 2016, there has been relatively low drawdown from it because the banks did not see their participation in the intervention business as profitable.

Besides, the administration of Godwin Emefiele, the current governor of the CBN, favoured CBN’s direct participation in the intervention schemes and is believed to have disbursed over N100 billion through its interventions in agriculture, manufacturing, SMEs, among others.

However, drawdown by banks from the scheme will be subject to their contributions to the Special Intervention Reserve (SIR) with the CBN, while repayments would be amortised, with quarterly principal repayments remitted to SIR Account domiciled in the CBN.

Recently, Edward Adamu, the deputy governor in charge of the corporate services department of the CBN, said the bank’s intervention is targeted at improving local production of four commodities, namely rice, fish, wheat and sugar.

While presenting a paper, “Galvanizing development finance and monetary policy for growth,” Adamu said the CBN intervened in the agriculture and manufacturing sectors through schemes like the Anchor Borrowers’ Programme, Commercial Agricultural Credit Scheme and the Real Sector Support Facility so as to strengthen the economy.

Specifically, he said the apex bank increased its lending to the two sectors to catalyse growth in critical sectors of the economy and create jobs.

“It is pertinent to note that at the Central Bank of Nigeria, our approach to stimulating economic development is three-pronged, centred on agriculture, micro, small and medium enterprises and infrastructure,” he said.

He agreed the CBN’s interventions transcend its core mandate of maintaining monetary, price and financial system stability. He said the bank undertook the developmental initiatives with a view to spurring economic growth and job creation, which should be the responsibility of the fiscal authorities.