How CBN’s new 5% interest rate ameliorate the effect of COVID-19 on Nigerians

The Central Bank of Nigeria (CBN) on Monday reduced the interest rates in all its intervention facilities from 9 percent to 5 percent per annum for one year to ameliorate the effect of coronavirus pandemic.

The CBN Governor, Mr.Godwin Emefiele , who disclosed this at a press briefing in Abuja, said the reduction of the interest rates took effect from March 1.

He disclosed that the bank had also extended moratorium of all CBN intervention facilities on all principal repayment for one year effective from the same date.

According to the CBN governor, the implication of this is that any intervention loan currently under moratorium will be granted an additional period of one year.

He directed all financial institutions to provide a new schedule for all facilities for their beneficiaries.

Similarly, Emefiele noted that the apex bank had also created a facility through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Micro Finance Banks to support households and Micro, Small and Medium Enterprises (MSMEs) that had been hit by COVID-19.

He said the sum of N50 billion would be given through NIRSAL to support business owners like hoteliers, airlines, service providers, and healthcare merchants among others.

Emefiele also announced credit support for healthcare industry to meet potential increase in demand for healthcare services and products.

He said: “CBN hereby, opens its intervention facilities, loans to pharmaceutical companies intending to expand or establish their own drugs manufacturing companies in Nigeria.

“This will also be extended to hospitals and healthcare practitioners who intend to expand or build healthcare facilities to the first-class standards.

“This is in addition to growing the size of our existing intervention to the agriculture and manufacturing sectors in the country.”

The CBN said it has about N3 trillion under various intervention programmes it operates through the various deposit money banks.

They include the Anchor Borrowers, Commercial Agricultural Credits Scheme, Micro-Small and Medium-scale Enterprise, or Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS) programmes.

With the breakout of COVID-19, the CBN said it expects that the ability of companies to repay the loans received under the various parogrammes would be impaired.

Consequently, the cut in the interest rate payable on such loans, the CBN governor explained, would give the businesses a breather to settle their financial obligations and help them continue to grow their businesses.

Also, the CBN governor announced the creation of an N50 billion targeted credit facility for small and medium scale enterprises as well as households impacted by the COVID-19 pandemic.

The apex bank also announced a further extension of the period of grace given for the repayment of the loans by one year on all principal facilities, particularly intervention loans, effective March 1, 2020.

Accordingly, the CBN governor directed participating financial institutions to provide new amortization schedules for all beneficiaries to repay.

In addition, the CBN, through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank for households, micro, small- and medium-sIzed enterprises (SMES) that have been particularly hard hit by Covid-19.

The support, the apex bank, said also extends to hoteliers, airline service providers, health care merchants, etc.

Toll on global business

Following the breakout of the virus late last year in China, the global economy has witnessed massive disruptions in supply chains and a sharp decline in crude oil prices in the international market.

Since the breakout of the virus, the international aviation industry has taken an unprecedented hit, with a loss of over $850 billion through flight cancellations in the last two weeks.

The crisis has equally taken its toll on the New York Stock Exchange (NYSE) and other global stocks and financial markets, which has lost about $13trillion so far.

The CBN governor said the impact of COVID-9 on the Nigerian business is obvious, as it has serious implications on key sectors of the economy, including oil and gas, airlines, manufacturing, trade and consumer markets.

In furtherance of its financial system stability mandate, Mr Emefiele said the CBN is committed to providing support to affected households, businesses, regulated financial institutions and other stakeholders to cushion the negative economic consequences of the pandemic on the people with the following policy measures.

To meet potential increase in demand for healthcare services and products, the CBN said it has approved loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to hospitals and healthcare practitioners planning to expand/build the health facilities to first-class standards.

Mr Emefiele said the support was in addition to growing the size of existing interventions to the Agricultural and Manufacturing sectors in Nigeria.

To provide a cushion for businesses and households most affected by the outbreak of COVID-19, particularly oil & gas, agriculture, and manufacturing companies, the CBN also granted all deposit money banks leave to consider temporary and time-limited restructuring of their loan tenor and terms.

Under this arrangement, any business that took a loan from a bank, and due to a drop in their revenue as a result of the adverse consequences of COVID-19, the banks have now been authorized to restructure their loans for a longer tenor.

This is to ensure that what the businesses will be paying to the bank as principal, plus interest, is reduced substantially for longer tenure, to allow the business to grow and survive

The CBN said it would continue to strengthen its loan –to- deposit ratio policy to grow credits to the economy and reduce interest rates.

The CBN governor said the bank would further support industry funding levels to maintain the commercial bank’s capacity to direct credit to individuals, households, and businesses.

“We will also consider additional incentives to encourage the extension of longer-tenured credit facilities. DMBs are encouraged to continue to build capital buffers in order to improve the resilience of the sector,” Mr Emefiele said.