The international Monetary Fund has expressed displeasure over banks’ persistent vulnerability to systemic shock in the industry.
IMF in the 2018 article iv consultation report with Nigeria, showed that Banks’ solvency ratios have declined from 14.8 to 10.5 per cent between 2016-2017, reflecting difficulties in four small and medium-sized undercapitalised banks (including one insolvent bank); some of these banks are kept afloat through continuous recourse to the Central Bank of Nigeria’s lending
facilities.
According to the IMF, non-performing loans have increased from five per cent of total loans to 15.6 per cent in October 2017, while four commercial banks managed to contain a more significant deterioration in reported asset quality through pre-emptive restructuring of loans to avoid a shift into NPL
territory.
Consequently, this is particularly for loans in the oil, gas and power sector where restructured loans are reported to range between two and 30 per cent of total loans (averaging 10 per cent) for the largest banks.
It stated that there should be more transparent operations in the financial system, especially with the CBN monetary policies.
“Unannounced special open market operations which have been done at slightly below market rates and not conducted through auctions, should be discontinued as they distort banks’ liquidity management practices and introduce uncertainty to their lending behaviour.”
The IMF noted that adopting a higher and symmetrically applied cash reserve requirement based on an average stock of deposits could achieve the same liquidity draining objective sought by the apex bank, adding that as a way of improving the communication policy of the CBN through more discussion of forward looking indicators, it will be important to reinforce price stability as the key mandate of the regulator and avoid confusing signals implied by the pursuit of multiple objectives.
Recently, President of IMF, Mrs. Christine Laggard, said the time is right for the federal government to specifically project 15 per cent growth in revenue to the gross domestic products such as to have some amount of revenue to service debt, reduce interest payment and deploy other resources to effective use by investing in priority projects aim at reducing employment ,
“Presently, the economy is generating six per cent revenue to gross domestic product. This, in our view, is inadequate; the micro and macro-economic indices of the real sector cannot be driven under this low revenue generation.
“An enabling environment needs to be created with a favourable industrial and monetary policies climate that could boost investors local and international into the Nigeria economy, the fiscal policy framework needs to be looked upon to enhance and increase taxes for growth in revenue to at least 15 per cent”
she said.
She explained that this will assist the economy to save additional funds , reschedule debt , pay interest on debt and have additional funds for investment in the economy, aimed at boosting output, grow the real and manufacturing sector, and reduce unemployment.
