Sustaining Credit Expansion for Economic Sustainability 

James Emejo writes that with the remarkable improvement in credit flow to the real sector through the various intervention schemes by the Central Bank of Nigeria in recent times, the gesture must be well-reciprocated in the interest of the general economy

If anything, recent reports that some beneficiaries of the banking sector intervention funds, particularly the CBN-Anchor Borrower Programme (ABP) and the Targeted Credit Facility (TCF) among others, have failed to commence the process of repayment of loans are particularly worrisome, considering the country’s hitherto credit system.

Earlier in September, there were reports that some maize farmers under the ABP had mistaken the loan for grants, and even acted as if they never knew they would have to pay back the loans.

The National President of the Maize Farmers Association of Nigeria (MAAN), Dr. Bello Abubakar, recently lamented that despite the numerous gains so far recorded in the ABP implementation, there had been challenges particularly as some farmers across the country have misconceptions about repayment, adding that some beneficiaries do not see the reason why they should pay back.

To make matters worse, Abubakar said some politicians have created wrong impressions that the intervention facility was from them and that it is free, a development which had further hampered loan repayment.

Intervention Exposures 

According to the central bank, out of the N9 trillion interventions funds disbursed to critical sectors of the economy, about N3.7 trillion had so far been repaid by beneficiaries while the sum of N5 trillion was not yet due for recovery as most are still under moratorium.

Speaking recently at the post-MPC media briefing, CBN Director, Development Finance Department, Mr. Yusuf Yila, said the anchor borrower programme had gulped the sum of N1 trillion out of which only about N400 billion so far been recovered.

Disappointing Attitude by Farmers 

It is rather disturbing that the negative attitude of some farmers to loan repayment had come after repeated clarifications and warning from the central bank on various occasions that the intervention funds are not grants but credit that must be repaid.

There’s no gainsaying the fact that the real sector of the economy which had hitherto been starved of financing by the banking system has witnessed an improved flow of credit in recent times, thanks to the efforts of the apex bank in mobilising support through its intervention scheme under its development financing initiative.

Commercial banks had particularly restricted funding to the agricultural sector and Micro, Small and Medium Enterprises (MSMEs) which were often considered high risk due to high rates of default in loans.

The CBN has had to intervene by providing liquidity directly to these sectors through its development financing programmes.

But the fact that one of the greatest fears of the banks – loan default by SMEs and farmers – are currently been replayed and experienced by the CBN leaves much to be desired.

Before now, SMEs and agriculture were considered highly risky to be supported by deposit money banks, prompting the apex bank to intervene and cause a watershed in real sector financing in the country.

 GSI to the Rescue?  

Following the failure of some beneficiaries of the ABP to offset their indebtedness, CBN Senior Manager, Development Finance Office, Port Harcourt Branch, Mr. Celsus Agla, during a strategic meeting with maize farmers and stakeholders from the South-south and South-east geo-political zone in Port Harcourt, Rivers State, warned that the bank may evoke the Global Standing Instruction (GSI) against loan defaulters under the Anchor Borrower Programme (ABP).

Essentially, the GSI, which was introduced by the apex bank in 2020, seeks to among other things, promote a sound financial system in Nigeria, facilitate an improved credit repayment culture, reduce Non-Performing Loans (NPLs) in the banking industry, and watch-list consistent loan defaulters.

According to the CBN, “The GSI shall serve as a last resort by a creditor bank, without recourse to the borrower, to recover past due obligations (Principal and Accrued Interest only, excluding any Penal Charges) from a defaulting borrower through a direct set-off from deposits/investments held in the borrower’s qualifying bank accounts with participating financial institutions.”

 No Mercy for Debtors

According to Yila, who insisted the CBN interventions were not grants but loans that must be paid back, the GSI has been activated to recover loans from the various beneficiaries of its intervention support.

He added that the CBN is already in the debt recovery mode and had been debiting the states directly from their FAAC allocations to settle their liabilities to the apex bank, adding that the bank is also partnering with the Economic and Financial Crimes Commission (EFCC) wherever risk is perceived.

According to the CBN director, “There will be no mercy, everybody must pay back” adding that the central bank is at this time also slowing down on all its intervention programmes to focus only on the priority areas, particularly electricity and SMEs, clarifying that the intervention schemes were not being shut down anyway adding that the manufacturing sector accounted for 31 per cent of the CBN intervention efforts.

Yila said: “We’ve already started even before the announcement of the MPC to taper some of the programmes that we were doing. I can confirm to you that the gates have been closed. To make the monetary policy tool that has been deployed very effective, you strain the money supply.

“So, indeed, we have closed the gates; only interventions that are very, very critical. MSMEs that are statutory which takes 5% of every bank’s profit after tax, it is not a lot to deploy to SMEs, and then supporting the electricity sector is very, very critical. Interventions have stopped…”

Continuing, he said, “We have also started recovering loans from state governments. We have been doing a loan workout programme with them, and we are debiting their FAAC directly for the loans.

“So, if a state government has taken N1 billion and is in default, over six months, we are going to be debiting them N150 million every month.

“So, we started that programme- every single loan that has been given out through any of our Intervention Programme must be paid back. There’s absolutely no mercy. We are in recovery mode as development finance departments are beginning to recover most of the loan.

“Finally, we’re working with EFCC. The CBN governor has approved for ourselves and EFCC to set up a desk to help us recover the loads where we are at risk. I mentioned really around ABP and then some of the SMEs. A lot of people took the targeted credit facility that we give out during the COVID-19 period. So, everybody must pay back. It is only when you pay back that we can have those funds to able to lend back. We’ll move to a regime where we’ll want to begin to push out funds.”

 Loan Default will Affect Credit Flow

 Meanwhile, analysts in separate interviews with THISDAY said the failure by beneficiaries of the CBN intervention funds to repay their loans will have implications for future disbursements. 

 Wealth Management and Business Development Consultant, Mr. Ibrahim Shelleng, said banks and other financial institutions have often limited their exposures to SMEs which are considered to be high risk due to high rates of default in loans.

According to him, the CBN has had to intervene by providing liquidity directly to these sectors through its development financing programmes, pointing out, however, that the central bank is also “witnessing the reason why deposit money banks have limited their involvement in those areas”.

He, nonetheless, noted that the inability of beneficiaries to fulfil their financial obligations to the apex bank may not be unconnected with both the COVID-19 pandemic and the current global headwinds due to the Russian-Ukraine crisis, which appeared to have taken a toll on small businesses.

Shellleng, however, said: “The high rates of default will undoubtedly hurt credit flow to the economy as banks will reduce their exposure to high-risk sectors. With real sector players not getting access to credit, it will certainly affect growth.

“Increasing credit to the real sector will require a robust credit system that firstly provides a robust risk assessment of potential borrowers and secondly, effective monitoring and collection of loan repayments as currently, aside from moral suasion and debiting from any bank account that the borrower owns (as recently introduced by CBN).”

In the same vein, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, the central bank’s bank’s initiative on lending to SMEs and agriculture was laudable adding that it was CBN that enabled the positive position on the credit landscape.

He said most of the deposit money banks refused to go deep into the SMEs and agricultural sector because of their fund mix and cost of funds which will be too expensive for the sector.

However, he said: “The CBN loan rate to these sectors were at single digit interest rate which is what is sustainable for the sector. The reports from the CBN have shown that most of the loan beneficiaries in the Anchor Borrowers Programme had failed to repay their loan.

“This can be attributed to two major factors: The beneficiaries believe that you don’t have to repay a government loan because it is free money; and some of the beneficiaries faced some challenges like security issues, weather problems that affected their business which caused them not to be able to repay the loan.”

Gbolade said: “The lack of repayment will affect other would-be beneficiaries and also affect increased credit to these sectors. 

“The major implication of non-repayment of CBN-initiated loans is that it would discourage the bank from rolling out more initiatives until positive reports start coming in.”