Banks’ NPL Ratios May Moderate Further as CBN Begins Implementation of GSI

CBN, Banks, And NPA To Resolve Export Bottlenecks In 90 days
CBN, Banks, And NPA To Resolve Export Bottlenecks In 90 days

All appears to be set for the commencement of the Global Standing Instruction (GSI) as the Central Bank of Nigeria (CBN), has issued its guidelines, mandated all banks and other financial institutions to begin implementation of GSI from August 1, 2020.

More importantly, the GSI is aimed at facilitating an improved credit repayment culture; reducing non-performing loans in the banking industry, and having a watch-list of consistent loan defaulters.

Banks’ NPL Ratios May Moderate Further as CBN Begins Implementation of GSI - Brand Spur

According to the operational guidelines, the GSI would serve as a last resort by a creditor bank, without recourse to the borrower, to recover past-due obligations (principal and accrued interest only, excluding any penal charges) from a defaulting borrower through a direct set-off from deposits/investments held in the borrower’s qualifying bank accounts with participating financial institutions.

Also in the week, CBN as part of its efforts to boost local production of maize and partly save the country’s dwindling external reserves stopped maize importers from accessing forex at the official window.

Hence, the apex bank on Monday, July 13, 2020, mandated all Authorized Dealers to discontinue the processing of Forms M for the importation of Maize.

In the real sector, the National Bureau of Statistics reported a 12.56% rise in annual inflation rate for the month of June from 12.40% printed in May (the highest since March 2018), in line with our expectations.

The increase in inflation rate was partly due to a rise in imported food index by 16.31% (higher than 16.26% in May) – amid further depreciation of the Naira against the USD at the Bureau de Change and the parallel markets window.

Specifically, two months moving average foreign exchange rates rose y-o-y by 22.80% and 24.97% to N439.72/USD and N450.36/USD respectively in June 2020. Similarly, the inflation rate increased by 15.18% (higher than 15.04% in May).

The climb in food inflation was caused by an increase in prices of bread, cereals, potatoes, yam, fruits among others. On the other hand, Core inflation rate barely rose, to 10.13% (from 10.12% in May) despite higher transportation cost (0.33%), clothing and footwear (0.11%) and energy costs (0.09%).

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On a monthly basis, the al inflation rate rose to 1.21% in June (from 1.17% in May), on rising food inflation and imported food inflation by 1.48% and 1.29% respectively. Despite the rising transport inflation rate which jumped by 1.03%, core inflation indices moderated by 0.86% (down from 0.88% recorded in May).

Meanwhile, urban and rural inflation rates rose by 13.18% and 11.99% (higher than 13.03% and 11.83%) respectively. On the foreign scene, US crude oil input to refineries moderated week-on-week by 0.28% to 14.31 mb/d as at July 10, 2020 (but 17.14% lower than 17.27 mb/d recorded on July 12, 2019).

Also, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell w-o-w by 1.39% to 531.69 million barrels (but higher by 16.63% from 455.88 million barrels as at July 12, 2019) on increasing oil prices.

Thus, WTI crude rose by 2.75% to USD40.69 a barrel; also, Brent crude rose by 2.05% to USD43.22 a barrel even as Bonny Light crude increased by 2.79% to USD43.87 a barrel as at Thursday, July 16, 2020.

We commend the apex bank on its efforts in ensuring reduction in banks’ NPL ratios as the implementation of the GSI should effectively reduce the number of loan defaulters and improve financial system stability.
This should further engender trust, going forward, and improve risk appetite of financial institutions in furtherance of the apex bank’s directive to improve the loan to deposit ratio beyond 65 per cent as well as financial inclusion, hence increasing credit to the private sector.
This, in addition to other intervention programmes across sectors, appears timely and should impact positively on an economy on the verge of falling into recession.