Investment bankers and other stakeholders in the money market are eagerly awaiting the framework for issuance of commercial papers which they have described as a form of Quantitative Easing.
The Monetary Policy Committee (MPC) of the Central Ban of Nigeria (CBN) held its third meeting in 2018 on Monday, 23 and Tuesday, 24 July 2018.
To support growth, the CBN encouraged large corporates to issue commercial papers which the apex bank would buy, although the framework for this is yet unclear.
Commercial paper is a short-term debt security issued by financial companies and large corporations. The corporation promises the buyer a return, or profit, for making the loan. The return is stated as an interest rate or percentage of the loan.
Reacting to this decision, investment bankers and other finance experts at Afrinvest (West) Africa likened this to Quantitative Easing (QE) that took place in advanced markets, after the 2009 global recession which recorded mixed impact.
“We await guidance on the entities that would qualify, targeted range of yields, intended size of the stimulus and the preferred market of intervention before we can critically assess this.
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“Our first impression, however, is that this is a form of Quantitative Easing in advanced markets, a last-ditch effort to boost growth after the 2009 global recession which recorded mixed impact,” the firm wrote in a note to clients.
The experts are concerned that this is an unlikely avenue for growth in Nigeria, given a largely informal economy which would not benefit directly from the proposed stimulus, probably targeted at large corporates (prime borrowers), and multiple structural factors that currently inhibit credit transmission.
The CBN also dangled a carrot at commercial banks, proposing a reduction in Cash Reserve Requirement (CRR) to banks that direct long-term credit at 9.0 per cent, with seven years tenor and two years moratorium, to critical sectors such as manufacturing and agriculture.
“We believe banks will not bite as long as structural barriers to accessing credit – such as lack of credit histories, lack of a collateral registry and poor competitiveness and productivity – are not addressed,” stated Afrinvest.
and then