Between the month of July and October 2019, banks loans & advances to customers has risen by over N1.1trnillion; a result of the Loan to Deposit (LDR) ratio policy introduced by Central Bank of Nigeria (CBN).
Speaking at the last Monetary Policy Committee (MPC) of 2019, the Governor, Central Bank of Nigeria (CBN), Mr. Godwin Emefiele noted that the part of its policies are already yielding results as banks are lending to real sector of the economy.
The 11-member committee on Tuesday decided by a unanimous vote to retain the Monetary Policy Rate (MPR) at 13.5 per cent; retain Cash Reserve Ratio (CRR) at 22.5 per cent and Liquidity Ratio at 30 per cent.
According to him, “The MPC reviewed the upsides and the downsides of the options to tighten, hold or loosen. It was conscious that, while tightening may encourage capital inflows, it also has the downside consequence of constraining the already nascent recovery in output growth.
“The Committee also noted that a reduction in the policy rate will improve growth prospects, but in view of the uptick in inflationary pressures, it decided that the balance of risks was in favour of protecting price stability.
“Considering the recovery, decline in market interest rates, growth in domestic credit amongst other positive developments, the Committee felt that there would be more gains in the short to medium term in holding policy at its current position. In its consideration to hold, the MPC noted with pleasure, the positive outcome of actions already taken by the Bank.
“These actions include: current policy on loan-to-deposit ratio, which has resulted in loans and advances rising by over N1.1trillion between June to October 2019.
“It further noted that these actions have assisted in boosting credit to the agricultural and manufacturing sectors, hence, the positive outcome on the Gross Domestic Product (GDP).
“The MPC is hopeful that the LDR initiative must be sustained as interest rates being paid by borrowers have so far dropped by up to 400 basis points between June and October 2019. These have happened with corresponding decline in NPLs to 6.5 per cent at end October 2019.
“The MPC is, therefore, of the view that sustaining the MPR at its current level is crucial for better understanding of the unfolding impetus of growth before deciding on any probable variations.
“The MPC also feels that holding its current policy position offers pathways for appraising the effect of the heterodox policies to encourage lending by the banking industry without varying the policy rate as the downside risk to growth and caution on inflation looks stable.”
He noted that the MPC are of the view that the improvements in the macroeconomic indicators such as the GDP, Non-Performing Loans (NPLs), Capital Adequacy Ratio (CAR), and the LDR, suggest that current monetary policy stance is yielding results.
“Therefore, feels that maintaining the current stance would be necessary in order to sustain the improvements.”