Nigeria to End Year 2021 With an Annual GDP Growth of Between 2.5% – 3.0% – CBN Governor

Being Address by the CBN Governor, Godwin Emefiele, at the 14th Annual CIBN Banking and Finance Conference Abuja Nigeria Held 14th September 2021.

(Protocols)

It is a pleasure to address the banking community at the 14th Annual Banking & Finance Conference, being organized by the Chartered Institute of Bankers of Nigeria (CIBN). I have always looked forward to participating at events organized by the CIBN, as the organization has been a critical stakeholder in supporting CBN’s efforts at promoting greater economic growth and continued stability of our financial system.

I wish to specially thank the President of the Federal Republic of Nigeria, President Muhammadu Buhari, for taking time out of his very busy schedule to participate in today’s event. Mr. President Sir, your presence today, is reflective of your efforts at ensuring that the banking sector continues to act as a catalyst for growth in Nigeria, and that it would also emerge as the leading financial center in Africa.

We also extend our profound gratitude to President Paul Kagame of Rwanda, for honouring the invitation of the CIBN. Your Excellency, your participation today is a testament of your continued efforts at strengthening intra-African trade and investments, which I believe is a requirement for greater good of all Africans.

Let me also thank the leadership of the Chartered Institute of Bankers of Nigeria led by its President, Mr. Bayo Olugbemi and his team, for their relentless efforts in ensuring the success of today’s event. Finally, I want to acknowledge the Managing Directors/Chief Executive Officers of our banks and other financial institutions, who have all found time to attend this conference despite their very busy schedules.

A year ago, I spoke at the 13th Annual Banking and Finance Conference, where I solicited the support of the banking community to address the unprecedented effects of the COVID-19 pandemic on Nigeria’s economy. I thank the banking community for listening and responding to my call as your support has been critical in aiding our recovery efforts.

We would continue to crave your support even going forward.

The theme of today’s conference “Recovery, Inclusion and Transformation: The role of Banking and Finance-, is apt, given the unprecedented events of 2020, especially when considered along the measures put in place by policymakers to reverse a significant downturn in economic activities last year. Today, I hope to address the important role the banking community can play in fostering greater growth and stability to sectors significantly impacted by the virus, while also supporting investments in key sectors of the economy that could have a multiplier effect on growth.

Recovery Efforts

As we are all aware, the impact of the virus along with the 60 percent decline in crude oil prices in the first half of the year, led to a significant decline in government revenue, foreign exchange earnings, as well as output in key sectors of our economy such as manufacturing and the services industries. As a result, the Nigerian economy fell into a recession in the 3rd quarter of 2020, after two consecutive quarters of negative growth of -6.1 percent in the 2nd quarter of 2020 and -3.6 percent in the third quarter of 2020.

In response to this challenge, the fiscal and monetary authorities took unprecedented measures to prevent further decline in economic activities. Our first objective was to restore stability to the economy by providing assistance to individuals, SMEs and large corporates that had been severely impacted by the pandemic, as well as by the lockdown measures. Secondly, working with the banking community, we also sought to aid faster recovery of the economy through the deployment of credit to operators in critical sectors of our economy such as agriculture and manufacturing. Some of the measures we took include:

• A 1-year extension of the moratorium on principal repayments for CBN intervention facilities;
• Regulatory Forbearance was granted to banks to restructure loans given to sectors that were severely affected by the pandemic
• Reduction of the interest rate on CBN intervention loans from 9 to 5 percent
• Mobilization of key stakeholders in the Nigerian economy through the CACOVID alliance, which led to the provision of over N23 billion in relief materials to affected households, and the set-up of 39 isolation centers across the country. The banking community was indeed instrumental to the success of the CACOVID alliance in providing support to affected individuals and communities in Nigeria.
• Strengthening of the Loan to Deposit ratio policy, which has resulted in a significant rise in loans provided by financial institutions to banking customers. Loans granted to the private sector rose by N3 trillion between July 2020 and July 2021 because of continued implementation of our LDR policy.
• Deployment of over N756 billion to 3.7 million farmers cultivating over 4.6million hectares of farmland under the Anchor Borrowers Programme.
• Deployment of N440 billion to 711,706 beneficiaries under the Agribusiness/Small and Medium Enterprises Investment Scheme (AGSMEIS) and the Targeted Credit Facility (TCF) being run by the NIRSAL Microfinance Bank.
• Disbursement of N98.41 billion in loans to support 103 healthcare projects, of which 26 are pharmaceutical companies and 77 are for healthcare institutions. These funds are helping to expand and strengthen the capacity of our healthcare institutions.
• Provision of N923 billion in loans to support 251 real sector projects, which has helped in boosting local manufacturing and production across critical sectors.

Without doubt, these measures helped to ensure that the recession was very brief as the economy emerged out of the recession by the 4th quarter of the year with a growth of 0.11 percent in the 4th quarter. Continued implementation of our interventions in the agricultural and manufacturing sectors; improved availability of COVID-19 vaccines, recovery in crude oil prices, along with a significant pick-up in economic activities have led to a surge in GDP output as our economy grew by 5.1 percent in the 2nd quarter of 2021, up from 0.51 percent in the 1st quarter of 2021.

Key sectors such as Agriculture, Manufacturing, Trade and ICT continued to witness growth even though growth in the petroleum sector continues to be constrained by output pressures. Hopefully, with the passage and Presidential assent to the Petroleum Industry Act (PIA), Nigeria is on the road to a new vista in the Oil and Gas sector 

Inflation

Alongside the recession, we also saw inflation rise to a peak of 18.17 percent in March 2021, due to heightened disruptions in global and domestic supply chains because of the COVID-19 pandemic, adjustments in the exchange rate, and heightened security issues in major food belts of the country. Reflecting several measures put in place by both the fiscal and monetary authorities, we have been able to reverse this trend with inflation declining to 17.38 percent as of July 2021, which is now the fourth consecutive month of this decline. We do expect that the pace of inflation will continue to moderate in the following months as we approach the harvest season.

Banking Sector

To prevent an economic crisis from spilling into a financial crisis, the CBN worked to protect the interest of depositors by ensuring that Banks made adequate capital provisions to cover for unexpected losses. We also enabled banks to restructure loans granted to individuals and businesses significantly affected by the pandemic. Our banks also demonstrated exceptional resilience by putting in place business continuity plans, along with the deployment of digital channels, which ensured that the provision of financial services to customers was not disrupted by the COVID-19 pandemic.

We are delighted that these measures have paid off. Indeed, key indicators in the banking sector continue to reflect that our banking sector remains strong, resilient, and healthy. Capital Adequacy Ratio and Liquidity Ratio in the banking sector have remained above the prudential limits at 15.5 and 41.3 percent, respectively. The Non-Performing Loan Ratio of the Banking Industry in July 2021 stood at 5.4 percent reflecting continued improvements from 6 percent in September 2020. Our banking sector remains well-positioned to support the recovery efforts of the fiscal and monetary authorities.

Your excellency sir, clearly, Nigerian banks have become not only strong and resilient, but have also carved a good niche in the world. To consolidate on the growth and resilience of Nigerian Banks in the last decade, your excellency, your Central Bank, will, in the next 12 months be establishing The Nigerian International Financial Centre (NIFC). The NIFC will act as an international gateway for Capital and investments, driven by technology and payment system infrastructure. This new financial hub, will curate local and international banks to make them global champions. The NIFC will be a 24/7 Financial centre that will complement London, New York and Singapore financial centers and enable an acceleration of our home grown initiatives such as the Infracorp plc, the N15 Trillion infrastructure fund which we will be launching in October 2021. The NIFC will also complement our initiatives on the Nigerian Commodity exchange and the

National Theatre creative hubs for our youths as well as the E-naira project which will also debut in October 2021. The NIFC will take advantage of our existing laws such as the BOFIA 2020, NEPZA and other CBN regulations  to create a fully global investment and financial hub where monies, ideas, and technology will move freely without hindrance.

Digital Connectivity

Our robust payment system has continued to evolve towards meeting the needs of households and businesses in Nigeria. Reflective of the confidence in our payment system, between 2015 and 2020, close to $500m worth of funds have been invested in firms run by Nigerian founders.

Notwithstanding these gains, close to 36 percent of adult Nigerians do not have access to financial services. Improving access to finance for individuals and businesses through digital channels can help to improve financial inclusion, lower the cost of transactions, and increase the flow of credit to businesses.

It is in this vein that the Central Bank of Nigeria is working to deploy a central bank digital currency, which would help in attaining our goals of fostering greater inclusion using digital channels, supporting cross border payments for businesses and firms as well as providing a reliable channel for remittances inflows into the country. When fully deployed, the eNaira will ensure that Nigerians in remote areas can conduct financial activities using their digital as well as feature phone devices. The support of the financial industry will be critical in the deployment of the e-naira and efforts are on-going to encourage continued partnership between the CBN and stakeholders in the financial industry.

Infrastructure Finance  

We are all aware of the criticality of infrastructure in fostering economic growth. Yet, Nigeria still has a huge gap to fill in this regard. That is why we believe the banking sector must pay attention to providing longterm finance for infrastructure development in the country. With the decline in revenues due to federal and state government because of the drop in crude oil prices, alternative ways of funding infrastructure are critical if we are to generate sustained growth of our economy.

In this regard, I am pleased to announce that InfraCorp, the infrastructure company being created by the CBN, African Finance Corporation and the Nigerian Sovereign Investment Authority to raise N15 Trn will be unveiled in October, 2021. InfraCorp would enable the use of mostly private capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors. The purpose of the N15 Trn being raised is to address some of our infrastructure needs, while providing reasonable returns to investors. We believe this well-structured fund can act as a catalyst for growth in the medium and the long run. The support of the banking community will be important in achieving this objective.

Stimulating Growth

It is therefore imperative from an economic as well as a security perspective, that our banking and financial system continue to support growth in sectors that have significant growth potential, and can enhance the resilience of the Nigerian economy, in the face of external shocks.

Agriculture

Another key area of focus that would help support stronger growth of our economy is the agriculture sector. We have witnessed the disruptions COVID-19 has had on global supply chains and food supply. These disruptions led to a significant surge in freight charges and a corresponding increase in global inflation. It is important that we continue to support measures that will increase productivity of our agricultural sector and strengthen our resilience against externally induced shocks. The banking sector therefore has a significant role to play as a facilitator of growth through its intermediation function.

Outlook

Your excellency sir, with continued improvements in the economy, I am optimistic that by the end of the year, our economy will not only close the ouput gap brought about by the 2020 recession, but that we would end the year with an annual GDP growth of between 2.5 – 3.0 percent, up from -1.92 percent in 2020.

Notwithstanding the positive news your excellency, I would admit that growth remains fragile. We are not out of the woods yet given the challenges in combating the covid 19 pandemic; and would therefore urge all stakeholders to remain vigilant to prevent a resurgence of the virus. The implementation of our various interventions need to be intensified to sustain the recovery and stimulate further growth of our economy.

Conclusion

Distinguished ladies and gentlemen, in concluding my remarks, let me add that while we have been able to contain some of the effects of the COVID-19 pandemic on our economy, it is imperative that we work to build a more resilient economy that is better able to contain external shocks, whilst supporting growth and wealth creation in key sectors of our economy. Proactive steps on the part of stakeholders in the banking and financial system in supporting the growth of sectors such as Agriculture, ICT and Infrastructure, will strengthen our ability to deal with the challenges that have been brought on by COVID-19, and stimulate the growth of our economy.

I thank you for your attention.

Godwin I. Emefiele (CON)

Governor

Central Bank of Nigeria