CBN to Redirect N5.5 Trillion from Development Finance Operations

YEPS
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Central Bank of Nigeria building

The Central Bank of Nigeria (CBN) is poised for a major operational transformation, according to the latest International Monetary Fund (IMF) report titled, “Nigeria: 2024 Article IV Consultation – Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Nigeria.”

The CBN plans to reallocate approximately N5.5 trillion from its development finance operations to a collaborative framework involving private banks and Development Finance Institutions (DFIs). This strategic shift aligns with IMF recommendations for Nigeria to refine its economic strategies and concentrate on core central banking responsibilities.

A key element of this restructuring involves the CBN gradually withdrawing from direct development finance activities, which have historically provided favorable lending terms to crucial sectors such as agriculture and small to medium-sized enterprises (SMEs).

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In December 2023, the CBN announced a suspension of new loan applications under its intervention programs. It tasked commercial banks, previously responsible for distributing these loans, with recovering outstanding amounts. Now, these responsibilities will transition to DFIs, co-managed by the Ministry of Finance and the CBN, along with private banking entities.

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The IMF report endorses this transition, suggesting it will allow the CBN to better focus on its primary duties, including ensuring monetary stability and overseeing financial regulation. The Fund also recommends that preferential lending terms be reserved for situations where market failures exist.

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“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, jointly owned by the Ministry of Finance and the CBN, and private financial institutions. An orderly transfer is essential to avoid disrupting credit flows to agriculture and SMEs,” the report stated.

Moreover, the CBN is intensifying efforts to recover overdue loans from its development finance initiatives, as part of a broader strategy to control inflation and manage credit growth effectively.

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Other measures to combat inflation include the bank’s renewed focus on standard monetary policy instruments, rolling back its N10 trillion quasi-fiscal operations while adhering to statutory credit limits to the government, and reducing the rapid growth of credit and money supply.

“The CBN has already started an aggressive recovery of overdue development finance intervention loans,” the report added.

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This significant overhaul marks a pivotal moment for the CBN, reflecting a commitment to enhancing its operational efficiency and aligning more closely with global financial best practices.

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