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CBN to transfer N5.5 trillion development finance activities to private banks and DFIs

The Central Bank of Nigeria (CBN) plan a major restructuring of its activities, with the aim of transfer about N5.5 trillion in development finance activities to a combination of private banks and development finance institutions (DFIs).

According to a new report on Nigeria, tThe move is in line with the recommendations of the International Monetary Fund (IMF) on the need for the country to streamline its economic policies and focus on the core functions of central banks.

Under the new strategy, the CBN will gradually phase out its direct involvement in development finance, which has historically included loans on concessional terms to sectors such as agriculture and small and medium enterprises (SMEs).

These activities will now be carried out by DFIs, jointly owned by the Ministry of Finance (MoF) and the CBN, and by private financial institutions.

The IMF supports this shift, suggesting it will help the CBN focus more on its primary functions, including monetary stability and regulation. It also recommended that the concessionality of new loans should be limited to areas where market failures are evident.

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The report read: “The CBN’s decision to scale down its development finance activities is welcome. These activities (5.5 trillion naira) will be transferred to development finance institutions, jointly owned by MOF and CBN, and private financial institutions.

“An orderly portfolio transfer is crucial to avoid disruption of credit flows to agriculture and small and medium-sized enterprises. Undercapitalized financial institutions should not be eligible to include CBN’s portfolio.

“The CBN’s credit programs have traditionally been implemented on concessional terms. Authorities will have to decide whether new loans will remain concessional and how costs will be absorbed. Staff proposes to limit concessionality to clear areas of market failure.”

Aggressive recovery

The CBN is also working to recover delinquent loans from its development finance interventions. This is part of a broader effort to rein in inflation and manage credit growth effectively.

The report read: Other measures to control inflation include the The Bank’s refocus on standard monetary policy tools, rolling back its N10 trillion quasi-fiscal operations while complying with legal limits on his credit to the government, and curbing the rapid growth of credit and money supply. At the same time, the CBN has already begun an aggressive recovery of delinquent development financing intervention loans.

More insights

  • The CBN has one suspension of new loan applications under its intervention programme in December 2023. At the same time, the CBN charged commercial banks, which previously facilitated the distribution of these intervention loans, with the responsibility of recovering outstanding loans issued under these programs.
  • Nairametrics earlier reported that the CBN’s Intervention Funds Program estimated at N10.3 trillion a reimbursement rate of 75.8% on September 30, 2023. Also, about N193 billion of the total loans disbursed was declared lost and another N418.9 billion was doubtful.
  • According to the report, of the N10.3 trillion in intervention funds, N4.4 trillion has been repaid while about N5.8 trillion remains outstanding. Some loans have a fixed term, which means that they only become due when the principal repayments are due.
  • The CBN in 2022 warned that it could use the Global Standing Instruction (GSI) against Anchor Borrower Program (ABP) defaulters.
  • That was also in a news report NIRSAL Microfinance Bank (NIRSAL-MFB) partnered with the Nigerian Financial Intelligence Unit (NFIU) to recover N450.9 billion in outstanding loans extended to farmers through the CBN’s ABP.