THE International Monetary Fund (IMF) recently had cause to caution the Central Bank of Nigeria (CBN) over the loans it made available to commercial banks in the country. According to the quoted figures, the loans rose to N2.4 trillion in the last quarter of 2017. Scared that any disturbance to the liquidity of the banks could have untoward effects on the country’s economy, the CBN apparently decided to stave off the potential evils of job losses and a contracted economy by giving the banks lifelines which are perhaps questionable in proper economic terms.
The IMF, however, thinks that this step by the CBN is ultimately not helpful to the Nigerian economy if there are not enough activities in the real sector to justify it. The word of caution from the IMF is meet, proper and due because the CBN’s interventions give the false impression of a healthy economy when there is nothing of such. Even the recent revelation by the Minister of Finance, Mrs Kemi Adeosun, that the recent economic recession experienced by the country would have lasted longer if it had not borrowed seems to suggest cautious frugality to decision-makers at all levels in the finance sector given the vagaries of the economy in which the service sector thrives at the expense of the real sector.
Ordinarily, borrowing is permitted and even recommended in an active and productive economy. However, it is a menace in an economy with a comatose real sector and a destructive consumption pattern that reflects a taste for foreign goods and services. From the figures rolled out by the IMF, it is easy to surmise that many of the banks are merely clutching at straws to survive, hence the CBN’s decision to bend over backwards and offer them lifelines in order to avoid loss of jobs and the full implications of general misery.
The question, then, is how long the CBN will do this without eventually caving in to the law of economic imperatives. Certainly, the CBN eventually has to do due diligence on all these banks in order to determine those that are doing credible and truly profitable businesses that will not need to continue depending on handouts and bailouts to survive. Much as the process might be hard, unpalatable and unsavoury, it will be the unavoidable end of the fiscal indiscipline and corruption permeating the country’s economic transactions. Besides, the authorities must take the rejuvenation of the real sector more seriously than hitherto. It seems as if the need for this has not been accorded the necessary urgency it deserves.
The IMF’s advice to the CBN then is actually to be taken as a report indicating the obvious distress in the Nigerian economy, about which an urgent and drastic decision should be taken by the administration before things get out of hand. The report is saying the obvious: many of the banks in Nigeria are fickle and unfit and their seeming buoyancy is actually a mirage.
and then