CBN Halts New Loan Applications, Shifts Focus to Recovery Amidst Financial Sector Shake-up

In a significant policy shift, the Central Bank of Nigeria (CBN) has officially suspended the acceptance of new loan applications under its Intervention Program. The move, outlined in a circular titled “Suspension of Acceptance of New Applications under the Existing Central Bank of Nigeria, CBN Development Finance Intervention Programme,” signals a strategic pivot in the bank’s operational focus.

The circular, signed by Sa’ad Hamidu, the Acting Director of the Development Finance Department, not only suspends new applications but also mandates commercial banks, previously involved in distributing these intervention loans, to take charge of recovering outstanding loans issued under these programs.

This development marks a departure from the central bank’s previous emphasis on development finance intervention funds, showcasing a renewed commitment to traditional central banking roles. The CBN aims to streamline its financial commitments and concentrate on core responsibilities related to monetary policy.

In an effort to align with international recommendations, particularly those from the International Monetary Fund (IMF), the CBN is taking steps to tighten its monetary policy stance. The IMF had advised halting intervention funds due to their impact on the rising inflation rate. The CBN’s decision reflects a move towards fully sterilizing the impact of its financing of fiscal deficits on money supply and phasing out credit intervention programs that expanded during the pandemic to support the private sector.

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Under the leadership of Governor Godwin Emefiele, the CBN had previously implemented various development programs across sectors such as agriculture, manufacturing, MSMEs, and energy. Notable among these was the Anchor Borrower Program, which disbursed approximately N1.01 trillion to farmers as of May 2022. However, recent data as of March 2023 indicates a repayment ratio of 53.39% for the Anchor Borrowers’ Programme, amounting to N503 billion out of a potential N942 billion.

The implications of the CBN’s directive are significant for the financial sector. The shift could lead to increased loan provisioning for banks that guaranteed or participated in on-lending these loans on behalf of the CBN. This precautionary measure is aimed at covering potential losses. Moreover, organizations benefiting from these intervention funds face substantial risks to their financial stability. Stringent recovery efforts by banks might pose challenges for these organizations in meeting their loan obligations, potentially leading to severe consequences such as liquidation and a subsequent decline in investor confidence.

Source: Nairametrics

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