CBN suspends new loan applications for Intervention Programs

The Central Bank of Nigeria (CBN) has announced a suspension of new loan applications under its Intervention Program.

In a circular entitled “Suspension of Acceptance of New Applications under the Existing Central Bank of Nigeria, CBN Development Finance Intervention Programme,” addressed to the Chief Executives of banks, the CBN outlined this new directive.

The circular, signed by Sa’ad Hamidu, the Acting Director of the Development Finance Department, marks a strategic pivot in the bank’s operational focus.

The suspension represents a significant shift in its approach to development finance intervention funds, which was the cornerstone of the previous central bank.

Concurrently, the CBN has tasked commercial banks, which previously facilitated the distribution of these intervention loans, with the responsibility of recovering outstanding loans issued under these programs.

This move signals an intensified effort by the CBN to streamline its financial commitments and refocus on more traditional central banking roles.

In a further elaboration of its evolving strategy, the CBN emphasized its intention to step back from direct involvement in development finance interventions.

Instead, the apex bank plans to concentrate on its primary responsibilities surrounding monetary policy.

This realignment towards its core mandate will involve transitioning into a more advisory capacity, where it can provide policy guidance that supports broader economic growth objectives.

The statement

“Accordingly, the CBN would be moving into more limited policy advisory roles that support economic growth.

“In consideration of the above, the CBN wishes to inform you that it has stopped accepting new loans applications for processing under any of its existing intervention programmes and schemes.

“It is important that you communicate this to your customers. And kindly note that the interest rates, as well as other terms and conditions on all existing facilities, remain as contained therein in their respective approval letters.

“You may also wish to note that your bank shall be responsible for the recovery of the outstanding balance on all facilities previously accessed through your bank.”

Taking IMF Advice

The latest circular from the central bank appears to be in line with IMF recommendations which had called for a stop to intervention funds due to the effect it has on the rising inflation rate.

The IMF listed three key recommendations which it claims are measures that will effectively tighten the monetary policy stance which included: “fully sterilize the impact of CBN’s financing of fiscal deficits on money supply” basically telling the central bank to clean up financing of government deficits via ways and means.

“continue phasing out CBN’s credit intervention programs, which expanded rapidly during the pandemic to support the economy.”

Thus telling the central bank to end its funding of the private sector via intervention funds. The policy of intervening in the private sector increased after the Coronavirus lockdowns.

About CBN development programmed

The CBN in the past years under the leadership of Gov. Godwin Emefiele had carried out various development programs across agriculture, manufacturing, MSMEs, energy, etc.

Prominent among them was the anchor borrower program in which the apex bank shelled out around N1.01 trillion to farmers across the country as of May 2022.

However, as of March 2023, the CBN disclosed that the repayment ratio for the Anchor Borrowers’ Programme (ABP) stands at 53.39%, amounting to N503 billion out of a potential N942 billion.

Nairametrics estimates total intervention funds to be over N4.8 trillion based on a collation of disbursements announced by the apex bank in their monetary policy committee meetings under Godwin Emefiele.

Likely implications

The Central Bank of Nigeria’s recent directive to suspend new loan applications for its development finance intervention programs and mandate banks to recover existing loans carries significant implications for the financial sector.

This policy shift could result in increased loan provisioning for banks that either guaranteed some of these loans or participated in on-lending on behalf of the CBN.

Such provisioning is a precautionary measure that banks may need to take to cover potential losses from these loans.

Moreover, this development poses substantial risks to the financial stability of organizations that have benefited from these intervention funds.

Faced with the prospect of stringent recovery efforts by banks, these organizations might struggle to meet their loan obligations.

This situation could lead to severe consequences, including potential liquidation, which would not only affect their operations but also risk diminishing investor confidence.

Consequently, some organizations might witness a withdrawal of shareholders, further exacerbating their financial challenges.