CBN’s Directives Weakening Its Confidence, Says Analysts

The Central Bank of Nigeria may be reducing its ability to make market driven policies, experts in the finance industry feel.

An analyst at Afrinvest Research, Adedayo Bakre, said the bank has abandoned market principles in driving growth.

CSL research shared similar sentiments in a report released on Friday, saying the apex lender is using unorthodox methods.

The CBN had on Thursday given a directive to Deposit Money Banks, instructing them to cancel any customer requests for the purchase of Treasury Bills at Primary or secondary auctions, if such customers are borrowing customers of such banks or other banks.

The order was not issued in a publically circulated circular but was communicated directly to the commercial lenders.

“This is surprising but what we have observed, with the recent flurry of direct interventions, is that the CBN has abandoned market-based approaches to policymaking.

“While the motivation for this decision is unclear, as no circular backs it up, we believe it further weakens confidence in the CBN.

“As customer loans are often above the rate offered on T-bills, there is no scope for arbitrage – loans offered at rates lower than the CBN’s approved interbank rate,” Bakare said.

“We are not certain what the CBN plans to achieve with this directive but we believe it may not be unrelated to the CBN's recent efforts to promote lending to the real sector by commercial banks,” the report said.

The firm further added, “Forcing banks to lend under the current macro-economic situation, with stringent capital and cash reserve requirements, will only result in banks resorting to ingenious ways to meet these requirements and we believe this may be the reason behind CBN's new directive.

“While the objective of the CBN is clear in terms of improving the flow of credit to the private sector to stimulate growth, we are concerned that these unorthodox methods being deployed to achieve this aim may have many unintended negative effects. We are also not certain how CBN intends to monitor compliance.”

For Afrinvest Research, the CBN’s many interventions at rates below what is obtainable in the market, provides room for abuse.

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