As the impact of the spread of the Coronavirus grows across the world, the Central Bank of Nigeria has joined policymakers across the world in taking steps that will cushion the impact of the pandemic on the economy. The CBN yesterday rolled out the chosen cutting down interest on its several intervention funds to five percent and creating a N50 billion targeted credit facility.
The European Central Bank, Bank of England and the Federal Reserves of the United States had last week cut rates. The CBN in a circular issued yesterday to all deposit money banks and the general public said it will also open intervention funds to healthcare-related companies to help them expand operations.
The circular which was signed by the Director, Financial Policy and Regulation, Kevin Amugo said the CBN is committed to providing support for affected households. businesses. regulated financial institutions, and other stakeholders in order to cushion the adverse economic impact of this pandemic.
To this end, it said “all CBN intervention facilities are hereby granted a further moratorium of one year on all principal repayments, effective March I, 2020. This means that any intervention loan currently under moratorium ate hereby granted an additional period of one year.
“Interest rates on all applicable CBN intervention facilities are hereby reduced from nine to five percent per annum for one-year effective March 1, 2020.” Also, the CBN established a facility through the NIRSAL Microfinance Bank for households and small and medium-sized enterprises (SMEs) that have been particularly hard hit by Covid-l9, including but not limited to hoteliers, airline service providers, health care merchants amongst others.
“To meet the potential increase in demand for healthcare services and products, the CBN hereby opens for its intervention facilities, loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to Hospital and Healthcare practitioners who intend to upand/build the Health facilities to first-class centers.”
Commenting on the move of the CBN, Head of Research at United Capital, Wale Olusi commended Olusi efforts saying the apex bank is reacting appropriately just as other economies are doing. To him, the measures particularly the facility extended to the healthcare sector is s step in the right direction as he said “it will support a lot of activities there. For the broader economy, I do not see a significant impact. I think policy measures at our disposal are already overstretched in a way that responding to new shocks is going to be ineffective because we have been doing everything, we are supposed to be doing during crisis period before the crisis.”
On his part, the Managing Director and Chief Executive of Cowry Assets Management, Johnson Chukwu said “it is good that specific actions are new being taken at some level of governance. Previously we were worried that no specific action was taken. Some of the actions taken will be very handy in managing the fallout of the Covid-19 crisis.
“One of it is the N50 billion intervention fund that the CBN has set aside. I foresee that in the next couple of months, the state government and sub-nationals might find it difficult to pay salaries of employees given the current price of crude. And given that the excess crude account has been completely eroded, that cushion is no longer there.
“On the intervention for the healthcare sector, it is important because it will be requiring lot of input resources. Already most of our pharmaceutical imports are from India and China so it is good that the CBN is trying to support that. The areas that I think will be difficult and tricky to implement are the areas of reduction in interest rates and granting of moratorium on loans.
“Because the loans are granted by the banks and the risks reside with the banks so if you want the banks to extend the timeline of this loan you need to cushion the risk associated with it. Also, the banks are the ones who are exposed to interest rates risk. If you want them to reduce the rates, the banks may be asking for some level of risk sharing.
“The CBN had also granted all Deposit Money Banks leave to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of Covid-l9 particularly Oil & 035, Agriculture, and manufacturing.
“The CBN would work closely with DMBs to ensure that the use of this forbearance is targeted, transparent and temporary, whilst maintaining individual DMBs financial strength and overall financial stability of the system.”
