The World Bank says the Central Bank of Nigeria’s development finance intervention is fuelling inflation in the short term. Which is weakening the ability of the apex bank to control inflation.
According to the global bank, the CBN’s continued provision of subsidized funding to certain sectors has to slow down, as it is undermining the ability of commercial banks to lend on a risk-adjusted basis. It added that the apex bank’s disbursement in the private sector rose from 6.5% in 2019 to 10% in 2021.
Disclosed in its ”Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual”. It said, “The CBN’s continued provision of heavily subsidized funding to certain sectors undermines commercial banks. Especially banks that lend on a risk-adjusted pricing basis and need to be dialed down”.
Furthermore, CBN also stepped up disbursements and kept the monetary policy rate unchanged at 11.57% from September 2020 until May 2022. On March 15, 2022, the CBN extended the five percent per annum interest rate on its development finance intervention funds. This is for one more year through the end-February 2023.
According to the Washington-based bank, expanding government programs to support micro, small, and medium enterprises is a priority. This is to protect viable and vulnerable MSMEs against rising uncertainty.
It further said that loan quality over the next several quarters is likely to deteriorate. However, It added that certain medium-sized banks that cater to SMEs and intermediate CBN development finance could stress if the economic recovery falters. And the SMEs, many of which have already suffered over the last two years, typically have less resiliency in revenue generation than larger, more diversified companies.