CBN’s Differentiated Cash Reserves Requirement and Corporate Bond Funding Program: A Game Changer in Private Sector Lending?

Recently, the Central Bank of Nigeria (CBN) issued guidelines (Guideline) for accessing its Real Sector Support Facility (RSSF) comprising the Differentiated Cash Reserves Requirement (DCRR) Regime and the Corporate Bond (CB) Funding Program. This innovative initiative forms part of the macro prudential tools being deployed by CBN under its expansionary monetary policy drive to stimulate affordable long-term credit to critical sectors of the Nigerian economy.

Below, we examine the key drivers for this policy initiative, discuss the features of the DCCR and CB programmes, then identify the eligibility criteria for accessing both programmes, and analyse the potential impact of the policy on macro-economic activities.

Key Drivers Necessitating the Policy Initiative

Access to affordable long-term credit has remained an illusion for most corporates despite the concerted efforts of CBN to reduce the costs of borrowing through different initiatives (including deploying intervention funds, reducing CRR from 25% to 22.5%, maintaining the MPR at 14%). Interestingly, despite inflation rates trending downwards, exchange rate stability seemingly achieved through the convergence of black market rates with official NAFEX rates, and price stability attained; deposit money banks (DMBs) have continued to show considerable reluctance to grow their loan book because of current macro-economic risks and need to reduce their NPL portfolio. This perception of risk has obviously led to interest rates remaining considerably high with Nigerian DMBs having the highest lending rates in sub-Saharan Africa.

Therefore, it had become imperative to stimulate the flow of credit at affordable rates to the private sector but in such a way that would have real impact on the economy  and complement the Federal Government’s fiscal policy hence focus for the DCCR on the Manufacturing and Agricultural sectors with emphasis on those projects that had potential for job creation , would yield foreign exchange earnings and have a high local content.

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