By Omoh Gabriel, Business Editor
The CBN has raised fresh alarm over mounting non performing loans in the banking system, even after it intervened in eight banks two years ago, those close to the CBN authority have disclosed. According to them, the CBN Governor, Sanusi Lamido Sanusi, in October “advised that the Banking Supervision Department (BSD) should identify the customers with huge non-performing loans, and review the risks posed to banks if monetary policy stance was tightened”.
It was gathered that the CBN management is thinking of a second look to be taken at the individual banks with large non-performing loans in a bid to taking a proactive action so that another banking crisis would not surface.
But it was learnt that the Deputy Governor, Financial System Stability, Dr. Kingsley Moghalu, has tasked the Banking Supervision Department of the CBN to resolve the non performing loans problem existing in banks
It was gathered also that the CBN management is worried by the continued drop in the nation’s foreign reserves, concluding that “there was a puzzle to be unravelled to know why foreign exchange reserves had been falling, as oil production and prices were rising.”
The CBN internal report, Vanguard gathered, indicated that oil export volumes had recovered in 2010 relative to 2009 on account of the rebound in both output and prices, but not yet to the level attained in 2008.
External reserves which peaked at $62.08bn in September 2008 had since declined steadily to $40.23bn in April 2010 and further to $33.60bn by end-October 2010. The major reason for the decline was the near exhaustion of the excess crude oil account from a peak of $20.44bn in January 2009 to $1.99bn at end- October 2010.
The CBN’s portion of the external reserves had also been falling since August 2008 due to the high demand for foreign exchange. The report also showed that during the period, payments to the joint venture partners for cash calls and subsidy deductions for the NNPC rose significantly.
The internal report further indicated that oil production in the country averaged 1.99 mbd in 2008, and fell to 1.82 mbd in 2009 with the lowest level being 1.60 mbd recorded in July 2009. However, oil output rose to an average of 2.13 mbd in the first 10 months of 2010. Movements in oil prices were mixed. In 2008, prices rose from $94.25/b in January 2008 to the highest level of $141/b in July, before falling to $44.95/b in December 2008. In 2009, prices ranged between $44.95/b and $78.46/b. The upward trend was sustained in 2010 with prices ranging from $76.42/b in July to $87.45/b in November 2010. The lowest price of $76.42/b in 2010 was higher than the budget price of $60.00/b”.
According to the CBN internal report sighted by Vanguard, the “Money market rates and other interest rates were not expected to moderate in the light of excessive government borrowing and the common year-end for banks. Inflation was not expected to moderate, thus making the single digit inflation target by the end of the year unrealisable.
“The updates were as follows: N 200bn Refinancing/Restructuring Facility: i. Of this amount, the sum of N139.199bn had already been disbursed through the BOI; ii. N69.47bn had been approved for disbursement as second tranche; and iii. amendments to the guidelines for the scheme had
The report noted that the budget deficit reported arose from huge government expenditure for
subsidising the consumption of petroleum products, and the increased wages to federal civil servants, the loss of revenue through duty waiver on rice imports, and the joint venture cash calls, among others. The CBN management agreed that fiscal discipline and structural reforms were needed to reduce the huge budget deficit.
On money market rates, it was also noted that the spread between the open buy back (OBB) and interbank rates reflected the credit risks in the industry.
The report said that the spike in interest rates in October 2010 arose from information and communications technology (ICT) challenges in the Bank when the Enterprise Resource Planning (ERP) platform was undergoing upgrades.
It noted that preserving the foreign reserves of the country had implications for the economy, particularly, as manufacturing inputs, power, food and petroleum products were largely sourced from imports. In that regard, the report noted the limits of monetary policy and emphasised the need for reforms in order to reduce pressure on policy. On the under performance of monetary aggregates, it was agreed that the monetary programme be reviewed, though the reason for the under performance was attributed to the nonperformance of fiscal operations. The report observed that much of the domestic revenue was devoted to recurrent expenditure which left very little room for capital projects.
“Members also recognised that while government borrowing would heighten money market rates, AMCON bonds expected to be issued to the banks would moderate the rates. It noted that the CBN should be observant of the development of asset bubbles in the stock market.
The report identified the following pressure points as the continued under-performance of monetary aggregates, relative to long – term trends; inflation threat resulting from anticipated liquidity injections; and rising interbank interest rates as well as high but narrowing interest rate spreads. The challenges for monetary and credit policy in the near term were identified as: providing adequate incentives for banks to lend to the real sector; sustaining exchange rate stability in the face of declining external reserves; and moderating inflationary threats.
