Emefiele: No Rate Cut Till Inflation Drops to 9%

•Tells banks era of investment in Treasury Bills over

James Emejo in Abuja with agency report

Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, yesterday ruled out a cut in interest rate until inflation, which is currently at double digits now, drops to a single digit of nine per cent.

He told Bloomberg Television in an interview in London that the CBN was hopeful that Nigeria’s inflation rate would hit the single digit mark by 2020 and that was when the banking regulator would consider a rate cut.

Emefiele, at another forum in Lagos, where he was represented by CBN Deputy Governor, Economic Policy, Dr. Joseph Nnanna, also told banks that the era of non-performing loans (NPLs) and investments in treasury bills was over.
He also charged the banking sector to live up to its core responsibility of stimulating the economy by advancing credit to the real sector to create jobs for Nigerians.

Vice President Yemi Osinbajo, also at the occasion, identified the banking industry as a key player in actualising President Muhammadu Buhari’s promise of lifting millions of Nigerians out of poverty.
“How soon do I see interest rates coming down? I’m not seeing that coming this year,” Emefiele said in the interview with Bloomberg, “During the course of 2020 we may be able to see that, but I can’t see that until we begin to see the numbers showing inflation is trending downward.”

The central bank held the monetary policy rate at 13.5 per cent last week for the third straight meeting after surprising the market in March with the first cut since 2015.
While inflation has slowed from as high as 18.7 per cent in January 2017 to 11 per cent in August, it’s been outside the target band of 6 per cent to 9 per cent for more than four years.

“Unfortunately it’s been sticky coming downwards as soon as it hit about 11 per cent. “The Monetary Policy Committee would love to see it at about 9 per cent before beginning to aggressively thinking about easing,” Emefiele said.
He also said most of the banks have obeyed a directive to raise loan-to-deposit ratio to 60 per cent as directed by CBN and those that fail to do so will face penalties by October 1.
“Compliance level has been excellent. Not all the banks have complied, naturally. Sanctions will be administered by October 1,” he added.

The CBN had ordered banks to increase lending by late September in a bid to shore up an economy struggling to recover from a contraction in 2016, its first in a quarter of a century. The monetary authority wants to steer banks away from naira bonds, which offer hefty yields, and into consumer and corporate lending.

Some lenders have warned that extending more credit amid double-digit inflation could jeopardise the health of the banking system.
S&P Global Ratings warned last week that the directive is unlikely to unlock credit, unless the government addresses other structural bottlenecks to investment in Africa’s most populous country.

At another event in Lagos, the CBN governor told banks that the era of NPLs and investments in treasury bills was over.
Emefiele, at the opening of the 12th Annual Banking and Finance Conference 2019, with a theme: “The Future of Nigerian Banking Industry- 360 Degrees,” warned that the era whereby banks practised what he termed as armchair banking- deploying their assets in fixed income instruments, particularly treasury bills and bonds at the expense of the real sector, was over.

He stated that the era of non-performing loans, which had plagued the banking industry, was over as anyone who benefits from any facility must pay back. He called on the judiciary to support the debt recovery initiative through quick dispensation of justice.
The CBN governor urged the industry to embrace the 21st century banking ideals, by redirecting surplus resources to critical sectors of the economy.
He said the days of brick and mortar banking were gone, urging banks to embrace digital banking.
He also described unemployment as the biggest challenge in the country and appealed to the banks to assist government in addressing the challenge.

He said: “Talking about transformation, banking in Nigeria has come a very long way. Today, with our new generation banks, the players of this space are digital in nature. We have gone beyond armchair banking where players play safe.
“Today, the CBN is calling on the banking system to be alive to its responsibility. We cannot conceive an economy without banks and neither can we conceive banks without an economy.

“What do I mean by this? What I am simply saying is that the days of armchair banking, playing in the treasury bills space, those days are right behind us. The Central Bank of Nigeria is bullish and we have in fact, taken our responsibility very seriously.
“In the past months, we have come with new initiatives: the loans to deposit ratio is aimed at transforming liquidity management into risk asset management and asset transformation.

“We do not want the banks to be money changers. Banking is not banking if you only play in the government fixed income space. Banking becomes meaningful when you take liquidity excesses from your surplus centres and channel them into scarce areas; that way you are transforming liquidity into assets and you are growing the economy and creating employment.

“Talking about employment, employment is the most serious issue facing our country and this is where banks must play a critical role.
“We must support government in asset creation; we must support the government in creating jobs for the teeming population.
“That is why we implore banks to ensure that idle liquidity is transformed into asset creation. We have also tried to de-risk the banking industry. The days of non-performing loans are behind us and we call upon the judiciary to assist us in this regard.

“We shall lend to borrow in the old fashion way, by paying back when we have accessed facility from the banks.”
On his part, Osinbajo said the banking industry would play a crucial role in the actualisation of Buhari’s promise of lifting millions of Nigerians out of poverty.
According to him, achieving success in the present administration’s numerous initiatives to empower Nigerians, depend on “what the banking industry is prepared to do, how adaptable the banking industry will be to giving loans, especially microcredit. Everything is changing very quickly.”

He said to make meaningful impact, government needed to create good jobs and opportunities, industrialise and provide the environment for local businesses, particularly small and large, to create wealth and value.
Osinbajo said government was committed to tackling concerns of young entrepreneurs and start-ups, small traders, as well as the “millions at the bottom of the economic value chain, the millions at the bottom of the pyramid, those who sell from their trays and table tops all over the markets in our country.”

“We started that journey with our collaboration with the Bank of Industry to deliver the GEEP programme, better known as TraderMoni and MarketMoni by providing microcredit to almost two million petty traders. The Bank of Industry has now brought this huge bottom of the pyramid into the formal financial system and that has been recognised worldwide.
“Recently the programme won the AfDB prize for financial inclusion because of the work that was done with TraderMoni. This is a huge task,” he added.