The Central Bank of Nigeria is set to undergo a significant operational overhaul according to a recent report by the International Monetary Fund on Nigeria titled, ‘Nigeria: 2024 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Nigeria.’
The plan involves reallocating approximately N5.5 trillion from its development finance operations to a collaborative framework involving private banks and Development Finance Institutions.
The report also highlights that this strategic realignment is in synchrony with the IMF’s advice, which advocates for Nigeria to refine its economic strategies and concentrate on the essential duties of central banking.
The restructuring blueprint includes a gradual withdrawal by the CBN from direct development finance. This role has traditionally involved offering favourable lending terms to key sectors such as agriculture and enterprises of small to medium size.
In December 2023, the CBN announced a suspension of new loan applications under its intervention programmes. The apex bank tasked commercial banks, which previously facilitated the distribution of these intervention loans, with the responsibility of recovering outstanding loans issued under these programmes.
The apex bank now transfers these responsibilities to DFIs which are co-managed by the Ministry of Finance and the CBN, in addition to private banking entities.
According to the report, the IMF endorses this transition, indicating that it’ll enable the CBN to better dedicate itself to its fundamental responsibilities, including ensuring monetary stability and overseeing financial regulation.
Furthermore, the Fund advises that preferential lending terms be reserved for scenarios where market shortcomings are present.
The report read, “The CBN’s decision to phase out its development finance activities is welcome. These activities (N5.5 trillion) will be transferred to development finance institutions, owned jointly by MOF and CBN, and private financial institutions.
“An orderly transfer of the portfolio is key to avoiding interruption of credit flows to agriculture and small and medium enterprises. Undercapitalised financial institutions should not be eligible to absorb CBN’s portfolio.
“The CBN’s lending programmes have been traditionally done on concessional terms. The authorities will have to decide if new lending will continue to be concessional and how costs will be accommodated. Staff suggests limiting concessionality to clear areas of market failure.”
The apex bank is also working on recovering overdue loans from its development finance interventions. This is part of a broader effort to rein in inflation and manage credit growth effectively.
“Other measures to rein in inflation include the bank’s re-focus on standard monetary policy instruments, rolling back its N10 trillion quasi-fiscal operations while complying with statutory limits on its credit to the government, and reducing rapid credit and money supply growth.
“Concurrently, the CBN has already commenced an aggressive recovery of overdue development finance intervention loans,” the report stated.
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