The Central Bank of Nigeria on Tuesday said it had concluded measures to lend to large companies in the country by buying Commercial Papers (CPs) issued by such firms.
The apex bank, which retained the Monetary Policy Rate (MPR) 14 per cent, sees the planned purchase of corporate CPS as one way of pushing down the interest rates payable by such companies.
CBN Governor, Mr. Godwin Emefiele, who spoke at the end of the Monetary Policy Committee (MPC) meeting, in Abuja, said that the decision to invest in corporate organizations became necessary because Deposit Money Banks (DMBs) had frustrated past incentives by CBN aimed at encouraging them to lend to the real sectors of the economy.
According to him, such CPs will be expected to come to the market at single-digit interest rates and for tenures, as long as, seven years.
He said, “The MPC deliberated extensively on what can be done to encourage banks to lend to the private sector because of the number we looked at during the main meeting, the MPC was concerned that credit to the real sectors was sliding and there was need to incentivise the banks to lend to the private sector. At this meeting, we saw improvement which was gratifying but we feel we must still do what we want to do.
“In order to achieve lowering interest rate especially to agriculture and manufacturing sectors, we will encourage large corporates to issue CPs into the market. “In order to complement the banks, we expect that those CPs will come in single-digit of 9 per cent or below 10 per cent, and for a long tenure, as high as, five years or seven years, with a two-year moratorium, and for specific purposes. If the CBN sees those kinds of notes in the market, we will complement the efforts of the banks through any mechanism to support that by lending to that corporate at that single-digit rate.
“It is not meant to be in competition with the banks, it is meant to complement their efforts. We want to see that our objective to see to it that we achieve lower interest rate of a single digit can come through this means.”
The CBN boss said that banks would also be incentivize to buy such CPs to be issued by the companies.
“If a bank loans such money for new projects or plant expansion and is verifiable, not for re-financing, a project for seven years inclusive of two years moratorium at 9 per cent, that bank providing those evidence and verified by the CBN, we will go into bank’s Cash Reserve Ratio and we will release cash of the equivalent sum to that bank at zero cost in which case that banks earns its spread of 9 per cent of that money, He said.
Continuing, Emefiele said, “We feel this is novel. It is something that we should give a chance. In the past, we had reduced CRR and released liquidity into the market but the liquidity was not channelled into the high-impact, employment-generating sectors and productivity sectors of the economy. That is why we feel we should approach it through this means. We believe this will work. We will, from time to time, monitor the level of liquidity in the market and we feel that rather than the banks using their monies to buy Treasury Bills, they can put money into these sectors and we will provide the liquidity to fund these transactions, as long as they meet these specified terms and conditions.”
The CBN boss said that more details would be provided later. CBN offers discount on Reminbi transactions On the currency swap deal with the People’s Bank of China, the Governor said, “China remains Nigeria’s largest trading partner and because imports must be paid for, we are saying this time that imports can be paid for using Reminbi, rather than the Dollar.
“We will encourage importers to use Reminbi by offering some discount that will encourage them to go for Reminbi Bills, because we have this swap deal with the People’s Bank of China. This should encourage more people to use Reminbi for trade between Nigeria and China. We opened the first option last Friday and the results from that option will be released on Friday but preliminary information I have is that it was a very successful auction and by the time the auction results are released, those who bided, bided at the rates we believe is good enough to encourage Reminbi trade.”
On why the bank retained the MPR at 14 per cent, the governor explained that members of the committee that attended the meeting agreed to maintain the current monetary policy stance.
He said apart from the MPR which was retained at 14 per cent, the committee also retained the Cash Reserves Ratio at 22.5 per cent.
Also retained are the Liquidity Ratio which was left at 30 per cent; and the Asymmetric Window which was left at +200 and -500 basis points around the MPR.
