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The
Central Bank of Nigeria (CBN) has said its intervention in some sectors
of the economy is not going to cost the federal government money since
the funds are fully provided for. This clarification comes amidst
concerns about the legality of the CBN disbursing such huge funds
without legislative approval.

Lamido
Sanusi, the CBN governor said recently that the funds which would be
disbursed through commercial banks would be recovered at the end of the
day. “We are lending to BOI (Bank of Industry) and BOI is lending to
banks and the lending is secured by government security,” said Mr.
Sanusi.

“So
for a power project to benefit from this, the bank has to be convinced
that it is commercially viable and that it can repay the loan. If it is
a bad loan the bank makes the provision. All we do is sell the
government bond and recover our money.”

The
Central Bank is releasing N500 billion to companies in power, aviation,
and manufacturing sectors in its bid to encourage economic growth and
infrastructure development to refinance their loans. On Monday, it also
announced plans to intervene in the agricultural sector with the
signing of agreement with the Alliance for a Green Revolution in Africa
(AGRA) to develop a mechanism for unlocking billions of naira of
financing to serve the needs of all farmers, especially smallholder
farmers, agro-processors, agribusinesses and input suppliers in the
agricultural value chain.

CBN needs to do more

Razia
Khan, Regional Head of Research, Africa at Standard Chartered Bank said
the Central Bank would need to do more in order to encourage banks to
lend their money to the real sector of the economy. Ms. Khan said there
is little prospect of a meaningful rise in credit until the non
performing loans constraining new credit growth have been removed from
banks’ balance sheets. “Given the imminent establishment of an Asset
Management Company to do precisely this, Nigeria may not have to wait
too much longer to see this excess liquidity transformed into
private-sector credit,” she said.

A
treasury manager in one of the banks who spoke on condition of
anonymity said the CBN intervention though laudable, was tantamount to
rewarding companies that have not been prudent in managing their
resources.

“What
you are saying is that those whose assets are performing are being
punished since those who have not managed their funds well now have
access to cheap funds,” he added.

Haphazard approach

He
added that the manner the Central Bank was going about it suggests a
haphazard approach to tackling economic issues. “Initially it was power
alone, then aviation, then manufacturing. It does not suggest that it
is part of a coherent economic policy at the macro level. So the
criticism is that it is adhoc instead of situating it as part of a
broader policy,” he said.

He
however explained that the move was in line with the CBN mandate as
lender of last resort and does not require the consent of the National
Assembly to appropriate such funds.

This
tally with the view of Bamidele Aturu, a lawyer, who said the Central
Bank intervention was akin to rewarding government cronies. “If the
government is serious about stimulating the economy all it has to do is
to create jobs, fix the infrastructure, mechanise and support farming
and farmers and of course fight corruption. No country can develop by
giving free money to a lazy and dissolute class,” Mr. Aturu said.

But analysts at Afrinvest West Africa Limited, an investment banking
firm said the banking industry would benefit from the intervention.
“With specific reference to the CBN/BOI N500 billion infrastructure
fund, our understanding is that the CBN seeks to stimulate credit to
real sectors of the economy while immunizing its balance sheet from
credit risks.”