Central Bank of Nigeria to limit banks’ investment in treasury bills and bonds, retains MPR at 13.5 percent

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The Central Bank of Nigeria (CBN) said it will limit the access of Deposit Money Banks (DMBs) to government securities, in order to ensure they redirect their lending focus to the private sector.

According to the CBN Governor, Mr. Godwin Emefiele, the intention was to stimulate growth in the economy.

The CBN unfolded its new policy direction on banks’ access to investing in treasury bills and bonds, just as it also resolved to hold all parameters of monetary policy constant by retaining the Monetary Policy Rate (MPR), otherwise known as interest rate, at 13.5 percent.

The MPR is the rate at which the CBN lends to commercial banks and often determines the cost of borrowing in the economy.

Emefiele, who read the committee’s communiqué at the end of the two-day Monetary Policy Committee (MPC) meeting in Abuja, said in arriving at the decision to hold all rates at current levels, nine members out of 11, voted to hold all parameters of monetary policy constant. Two members voted, however, to reduce the MPR by 25 basis points.

He also said the MPC particularly expressed concern at the development whereby banks abandoned their key roles of stimulating growth by investing in government instruments at the detriment of the economy.

According to the CBN Governor, “the truth is that yes, according to our own regulations, there is a particular minimum percentage of treasury bills or government securities that the banks must invest in, in order to remain liquid. But again, we have observed and unfortunately and increasingly so, that the banks, rather than even focusing on granting credit to the private sector, they tend to direct their focus mainly on buying government securities”.

He said “the MPC has frowned on that and has directed the management of the CBN to put in place policies or regulations that would restrict the banks from unlimited access to government securities”.

Expressing his concern on the development, Emefiele said “it is important and expedient that the committee gives this directive to management because this country badly needs growth. For us to achieve growth, those whose primary responsibility that it is to provide credit, who act as intermediaries in providing credit and are called catalysts to credit and growth in the economy must be seen to perform that responsibility”.

Emefiele said measures would be taken to mitigate losses on the issues that have discouraged banks from lending to the real sector as well as the Non-Performing Loans (NPLs) in the industry.

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