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CBN to Reallocate N5.5 Trillion from Development Finance Operations

Last Updated on May 13, 2024 by Silvy

CBN to Reallocate N5.5 Trillion from Development Finance Operations

ABUJA, May 13, 2024 – The Central Bank of Nigeria (CBN) is poised for a significant operational shift, reallocating approximately N5.5 trillion from its development finance operations to a new collaborative framework.

This move involves partnerships with private banks and Development Finance Institutions (DFIs), according to a recent International Monetary Fund (IMF) report on Nigeria, titled ‘Nigeria: 2024 Article IV Consultation-Press Release; Staff Report; Staff Statement; and Statement by the Executive Director for Nigeria’.

The strategic realignment aligns with IMF recommendations urging Nigeria to refine its economic strategies and focus on core central banking functions. The restructuring plan includes a phased withdrawal from direct development finance, which has traditionally provided favorable lending terms to crucial sectors such as agriculture and small to medium-sized enterprises (SMEs).

In a significant policy shift announced in December 2023, the CBN suspended new loan applications under its intervention programs. Responsibility for the recovery of outstanding loans issued under these programs has been transferred to commercial banks.

The new strategy delegates the management of these responsibilities to DFIs, co-managed by the Ministry of Finance and the CBN, alongside private banking entities. The IMF supports this transition, noting that it will allow the CBN to better focus on its primary duties, including monetary stability and financial regulation oversight.

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The IMF report also suggests that preferential lending terms should be reserved only for cases of market failures. It states: “The CBN’s decision to phase out its development finance activities is welcome. These activities will be transferred to development finance institutions, owned jointly by MOF and CBN, and private financial institutions“.

An orderly transfer of the portfolio is crucial to prevent disruptions in credit flows to agriculture and SMEs. The report warns that undercapitalized financial institutions should not be eligible to absorb CBN’s portfolio.

The CBN is also intensifying efforts to recover overdue loans from its development finance interventions, as part of broader measures to control inflation and manage credit growth effectively. This includes a re-focus on standard monetary policy tools and reducing the rapid expansion of credit and money supply.

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