Central Bank May Lend Directly To Companies Through Commercial Papers

The Central Bank of Nigeria might start lending to companies directly by buying their commercial papers......

Speaking on Tuesday while announcing the decision of monetary policy committee of the apex bank, Godwin Emefiele, CBN governor, said the bank will be willing to buy if the papers are issued at single digits.
“The committee believes that the Bank should continue to encourage deposit money banks (DMBs) to increase the flow of credit to the real economy to consolidate economic recovery,” he said.
“In this regard, the committee believed that a heterodox approach to reform the market in order to strengthen the flow of credit would be appropriate at this time.
“Consequently, credit constrained businesses, particularly the large corporations are encouraged to issue commercial paper to meet their credit needs and the Central Bank of Nigeria may if need be, buy those instruments to complement the efforts of the DMBs.”

“In addition, as a way of incentivise deposit money banks to increase lending to the manufacturing and agriculture sectors, a differentiated dynamic cash reserves requirement (CRR) regime would be implemented, to direct cheap long-term bank credit at 9 percent, with a minimum tenor of seven years and two years moratorium to employment elastic sectors of the Nigerian economy.”
The committee also advised that the government take advantage of rising crude oil prices to improve the nation’s savings.
“As the prices of crude oil in 2017 and 2018, the monthly allocation to various levels of government increased suggesting that federal government was not conscious of saving for the rainy day.
“The committee, therefore, advised the fiscal authority to build the buffers especially now that the price of crude oil is relatively high.”
Dangote Group recently listed its N50 billion commercial papers on FMDQ at 13.21%.

July 26, 2018