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Markets react to Governor Emefiele’s decision to keep rates on hold
Nigeria’s Monetary Policy Committee voted to keep the benchmark Interest rate unchanged at 13.5 per cent. In its communiqué, the MPC noted that holding its current policy position offers pathways for appraising the effect of policies encouraging lending by the banks. Head of Research at Vetiva, Usoro Essien joins CNBC Africa for a focus on Nigeria’s banking sector.
Wed, 27 Nov 2019 14:22:18 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- The CBN's decision to maintain the benchmark interest rate reflects its focus on evaluating the effectiveness of unconventional policy tools like the loan-to-deposit ratio and OMO trading restrictions in boosting lending to priority sectors.
- While these policies have led to a reduction in borrowing costs and increased interest in equities among investors, concerns persist regarding the long-term sustainability and impact on asset quality in the banking sector.
- Managing non-performing loans remains a challenge for banks, particularly in segments with higher default rates, necessitating continued vigilance and potential revisions to regulatory requirements to promote responsible lending practices.
Nigeria's Monetary Policy Committee recently made the decision to keep the benchmark interest rate unchanged at 13.5 per cent. This move, which was largely in line with market expectations, signals the central bank's commitment to assessing the impact of its policies aimed at boosting lending by financial institutions. The Head of Research at Vetiva, Usoro Essien, provided insights on the implications of this decision for Nigeria's banking sector. The Central Bank of Nigeria (CBN) has been employing unconventional tools such as the loan-to-deposit ratio and restrictions on Open Market Operations (OMO) trading to increase lending to priority sectors like consumer lending, mortgages, and retail. These measures have led to a decrease in borrowing costs and a shift in investors' focus towards equities, away from traditional fixed income securities. While these policies have shown some positive results, questions remain about their sustainability and long-term effectiveness. Essien emphasized the need to strike a balance between promoting lending and maintaining asset quality in the banking sector. He pointed out that while there is room for banks to increase lending to the private sector, managing non-performing loans (NPLs) remains a key challenge. Despite improvements in asset quality, certain segments of the market continue to exhibit high default rates, necessitating ongoing monitoring and adjustment of lending practices. Looking ahead, Essien expects the CBN to continue its efforts to stimulate lending, potentially revising the Loan-to-Deposit Ratio (LDR) requirement to incentivize banks to extend credit. However, he noted that smaller banks may face greater challenges in meeting these regulatory targets, as larger institutions with greater scale have more flexibility to comply while maximizing returns from fixed income investments. Overall, Nigeria's banking sector finds itself at a critical juncture, navigating a complex regulatory environment while striving to support economic growth and stability.
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