The World Bank has asserted that the Central Bank of Nigeria’s development finance intervention is fuelling inflation in the short term and weakening the ability of the apex bank to control inflation.
According to the global bank, the CBN’s provision of subsidized funding to certain sectors has to reduce as it is undermining the ability of commercial banks to lend on a risk-adjusted pricing basis.
It added that the apex bank’s disbursement in the private sector as its share of private sector credit rose from 6.5 percent in 2019 to 10 percent in 2021.
The World Bank disclosed this in its ‘Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual.’
It said, “The CBN’s continued provision of heavily subsidized funding to certain sectors undermines commercial banks that lend on a risk-adjusted pricing basis and needs to be dialed down.
“CBN disbursements are growing in funding the private sector, with the CBN’s share of private sector credit rising from about 6.5 percent at end-2019 to 10 percent by end-2021. Although some of the COVID-related tools deployed by the CBN are being phased out (e.g., the moratorium on principal repayments on CBN-funded credits lapsed in March 2022), the Central Bank has introduced new intervention facilities without a publicly available evaluation of their impact.”
According to the Washington-based bank, expanding government programs to support micro, small, and medium enterprises is a priority to protect viable and vulnerable MSMEs against rising uncertainty.
It said while the banking system had proved resilient in the face of the pandemic, the operating environment for banks and firms has become more challenging recently.
