CBN debunks reported plan to devalue naira

• Non-performing loans in banks freeze credit flows
• Nigeria to start exporting rice in two years’

There is no truth whatsoever in speculations that the naira has been devalued or that a devaluation is imminent, the Central Bank of Nigeria (CBN) has said.

The bank’s Acting Director of Corporate Communications Department, Isaac Okorafor, described the speculations as the handiwork of those who are bent on seeing Nigeria do their bidding and using the uncensored social media.

According to him, the devaluation of the naira would come with an official announcement and not speculation, assuring that the CBN has no plan for that as its current measures to stem the foreign exchange challenges are gradually yielding the desired results.He therefore, called on the public to disregard the reports or speculations.

Meanwhile, there are indications that beyond claims of readiness to extend credit facilities to the private sector, the deposit money banks are currently running away from their responsibility as resurging loan defaults tend to overwhelm them.

Specifically, at the end of April 2016, the industry’s non-performing loans portfolio had already reached a new high of N649.63 billion, representing a 78 per cent increase since December 2014.

The development, which has now become a source of worry to the Central Bank of Nigeria (CBN), although it continues to assure that the banking system remains resilient and sound, has exceeded the target band of five per cent of gross loans in the industry and now at 5.2 per cent.

Consequently, banks have now drastically reduced their lending portfolios, even developing apathy to the intervention and development finance of CBN made for small businesses, on the ground that they would be held responsible if they fail and that the interest rate margin pegged at nine per cent is not attractive.

Besides, the CBN has projected that Nigerian rice farmers would start exporting rice to other countries in the next 24 months as a fallout of the apex bank’s Anchor Borrower Programme (ABP) that has benefited farmers in Kebbi State.

Okorafor who made the disclosure in Lokoja at the bank’s fair at the weekend said out of the 6.1 million tonnes of rice needed to feed Nigeria, Kebbi State farmers produced over one million tonnes for the year.

Okorafor who was speaking against the backdrop of bitter experiences of farmers when they take loans to expand their capacity and end up incurring more losses due to lack of markets and perishability said the ABP was conceived to enhance their capacity.

According to him, the ABP is part of the Micro/Medium Scale Development Fund of N220 billion, set aside by the bank, 60% of which is for women-led enterprises and two per cent for people with disability. He said the bank is targeting all the strata of the society to uplift the very poor.

“We have realised that farmers when they borrow money on their own to plant tomatoes, rice, cassava when they harvest there is nobody to take from them and they mostly perish.

“When rice paddy growers produce rice nobody comes, imported rice comes to spoil the effort. Importation has dealt a deadly blow on farmers,” he said.

He said the bank published 41 items ineligible to foreign exchange through the bank’s financial window, hence they are now organising these farmers into groups and linking them to millers for rice.

“This is how it works: at the outset each farmer is given one hectare of land, irrigated and the farmer is also supplied seedlings, the best yield with fertiliser and other agro chemicals.
“Out of the N220,000 loan for each farmer only about N70 is given to them as working capital. The rest is used to procure seedlings and all the other needs.”

As a result of the rise in NPLs, commercial banks have cut their loan projections for 2016 to improve the capital position of bank in accessing finance in the capital market and prevent potential bank crisis.

They therefore, have resorted to investing in non-risk assets of government like bonds and treasury bills, as well as depositing their excess funds in CBN’s Standing Deposit Facility, which rate was recently jerked up.

“With higher interest rate (benchmark at 12 per cent), narrower corridor, and rising non-performing loans due to present economic downturn, we expect that commercial banks will continue to deposit excess funds with the CBN for higher returns, and reserve more risk-absorbing capital; thus, crowding out the capacity of private sector to borrow.

“Given the need for low interest rate to spur growth in the absence of fiscal stimulus, we also expect economic growth to continue on its sluggish trajectory until the delayed government spending filters down to the real sector of the economy,” the President and Chief Executive Officer of Time Economics, Dr. Ogho Okiti, said.

Already, the trend has been attributed to factors outside the control of banks, which are inhibiting the ability of many companies to pay interest and/or principal on loans.

Okiti, however, noted that the current defaults contrast with those of 2008/9, which were fuelled by systemic weaknesses in the banking sector such as the paucity of credit history information on borrowers.

Also, the renewed fall of the nation’s foreign exchange reserves’ profile has been attributed to increased allocations to manufacturers and importers of petroleum products.

Specifically, the stock of foreign exchange reserves depreciated by 2.4 per cent in April, compared with a marginal growth of 0.23 per cent recorded in the preceding month of March.

This translates to a drop of $662 million to $27.2 billion as at April 25, and currently at $26.78 billion from $27.86 billion as at April 1 and putting it at 11-year low.Year-on-year basis, the reserves have declined by $1.86 billion or about N370 billion in 2016.

In the currency market, while the official exchange rate remains stable at N197 – N199 per dollar at the CBN and the interbank market, the naira mostly traded within the band of N320 to N323 per dollar in the parallel market in the month of April.