Thursday,September 06, 2018 4.30PM / Proshare WebTV 

In a recent edition  of the Proshare WebTV economicdiscourse, Tope Babalola of the economy desk speaks on the  initiatives ofthe Central Bank of Nigeria; the  Differentiated Cash ReservesRequirement, DCRR And Corporate Bonds initiatives designed to incentivizeDeposit Money Banks (DMB) to increase lending to key sectors like Agricultureand Manufacturing that can stimulate economic growth. 

According to him, “The CBN in several times had always emphasized that our cash deepening ratio has been narrow, so thereforethe DCRR  and Corporate Bond initiatives are an attempt to deepen creditdebt.” 

“It also shows that the central Bank with the corporate Bond isalso trying to stimulate what many people refer to as supply following finance,which is addressing the challenge of a captive money market dominated by thefiscal authorities to stimulate both growth and also reduce the level ofunemployment in the country”. 

He explained further  that it was not a complete shift in monetary policy for Nigeria, but a move from targeting inflation to aneclectic position that looks at growth and unemployment. 

“Considering the fact that the Cash Reserve Ratio  is tied tobase money, reducing CRR with the DCRR will allow banks to give fresh capitalto businesses”. 

Tope noted that CBN was tweaking the CRR in order to create morecapital with Cash Reserve Ratio, which is important especially in aneconomy where unemployment is very high. 

Speaking further on the objective of the DCRR and CB to addressthe issues of credit to the real sector of the economy, especially vitalsectors like Agric and Manufacturing, the analyst listed three issues forconsideration; 

1.The need to address the structural factors in the Nigerianeconomy,  which in one way or the other poses largely symmetrical risks.This he posits affects how credit can be accessed in the country. 

2.He asserts that in creating some of this credits, banks willalso have to look at how they rotate their asset over time. 

3.From the fiscal side, Tope Babalola opines that it will givepolicy makers an opportunity to look into the Local content policy, BackwardIntegration policy  and the Import Substitution Strategy to improve supplyslide economics. 

4.He is of the view that top priority should be given to sectorsthat can drive Nigeria’s economic diversification in terms of export revenue. 

Tope retains the fact that the structural issues in the economywill be the major headwind to the success of the new CBN initiatives.

The DCRR facility would allow Banks toaccess part of their CRR deposits kept with the CBN, in providing creditfinancing to greenfield (new) and brownfield (expansion) projects in the realsector (particularly Agriculture, Manufacturing and other growth &employment stimulating sectors) for a minimum of 7-years at maximum interestrate of 9.0% and with a 2-year moratorium.

On the other hand, the CBs fundingfacility allows the CBN to invest, alongside the public, in CBs issued bylarge/triple-A rated corporates for a minimum tenor of 7-years subject to theintensified transparency requirements for Triple A-rated entities.

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