Governor of the Central Bank of Nigeria, Godwin Emefiele, has sought the restriction of banks’ access to government securities such as bonds and treasury bills.
Speaking at the recently-held Monetary Policy Committee (MPC) meeting in Abuja, Emefiele said the apex bank needs to initiate policies that will facilitate the restriction.
Reason for the restriction: Emefiele said the Monetary Policy Committee members voted to restrict Deposit Money Bank’s access to government securities in a bid to protect the private sector. According to him, banks’ easy access to government security lead to the crowding out of private sector lending and this is not good for the economy, he said.
“IN VIEW OF THE ABUNDANT OPPORTUNITIES AVAILABLE TO BANKS FOR UNFETTERED ACCESS TO GOVERNMENT SECURITIES, WHICH TENDS TO CROWD OUT PRIVATE SECTOR LENDING, THE COMMITTEE CALLED ON THE BANK TO PROVIDE A MECHANISM FOR LIMITING DMBS ACCESS TO GOVERNMENT SECURITIES SO AS TO REDIRECT BANKS’ LENDING FOCUS TO THE PRIVATE SECTOR, NOTING THAT THIS WOULD SPUR THE MUCH-NEEDED GROWTH IN THE ECONOMY. IT CALLED ON THE GOVERNMENT TO USE ALL MACHINERY AT ITS DISPOSAL TO INCREASE TAX REVENUE TO ENABLE THE GOVERNMENT TO FUND ITS BUDGET ADEQUATELY.”
Speaking further, Emefiele disclosed that banks have a required minimum number of treasury bills they must invest in so as to remain liquid. However, as the CBN has observed, banks have been focusing on buying government securities instead of focusing on providing financing facilities to the private sector.
“THE TRUTH IS THAT ACCORDING TO OUR OWN REGULATIONS, THERE IS A PARTICULAR MINIMUM PERCENTAGE OF TREASURY BILLS OR GOVERNMENT SECURITIES THAT THE BANK MUST INVEST IN ORDER TO REMAIN LIQUID. BUT AGAIN, WE HAVE OBSERVED – AND UNFORTUNATELY TOO AND INCREASINGLY SO – THAT THE BANKS, RATHER THAN FOCUSING ON GRANTING CREDIT TO THE PRIVATE SECTOR, THEY TEND TO DIRECT THEIR FOCUS TO MAINLY IN BUYING GOVERNMENT SECURITIES.”