By Sunday Etuka, Abuja
Renowned Capital Market Professor, Uche Uwaleke has expressed worried that the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to raise the Monetary Policy Rate (MPR) to 26.25 percent will endanger the asset quality of banks leading to high rate of Non- Performing Loans (NPLs) in the sector.
Prof. Uwaleke who spoke exclusively to TheFact Daily on Wednesday said, the decision would lead to sharp increase in lending rates which would make it difficult for customers to repay the loans taken from the banks.
In his words, he said, the “lending rates will jump thereby jeopardizing chances of repayment for customers who already borrowed from the banks. This will endanger the asset quality of banks leading to high rate of non-performing loans”.
Recall that the Q1 2024 report of eight banks released on the Nigerian Exchange shows that provisioning for loan losses had spiked from N45.13 billion in the first quarter of 2023 to N247.91 billion as at the end of the first three months of 2024.
The spike in loan losses provision was attributed to the rising interest rate which has made it difficult for borrowers to pay back.
Meanwhile, the MPC on Tuesday raised the benchmark interest rate again by 150 basis points, from the 24.75 percent held in March 2024, to 26.25 percent to tame the rising inflation in the country.
CBN Governor, Mr. Oleyemi Cardoso who announced the committee’s decision, said, the inflationary pressure continues to be driven largely by food inflation.
He listed the several challenges confronting the effective moderation of food inflation in Nigeria to include: rising cost of transportation of farm produce; infrastructure-related constraints along the line of distribution network; security challenges in some food producing areas; and exchange rate pass-through to domestic prices for imported food items.
However, Uwaleke who is the President of the Association of Capital Market Academics of Nigeria (ACMAN) said, the major challenge the nation’s economy is facing currently is not that of inflation, but stagflation.
He noted that “for a very long time now, we have not had a GDP growth rate that is above 3 percent on the average, and I think that should also bother the CBN.
“The CBN while performing its primary function should also have an eye on output. Recall that between February and March, just within one month, the MPC took the MPR up as high as 600 basis points.
“I had expected that at this rate they would have pause rate and watch the impact of what they had done in a couple of weeks ago on the economy before this current tightening.
“Inflation rate is still at 23.69 percent, and also recall that is despite aggressive tightening that was done in February and March. So what that tells you is that inflation is not going to come down simply by raising the MPR.
“He also said that the factors driving inflation rate in Nigeria is non monetary, and it’s only the monetary factors the CBN can tackle, the non monetary factors like food and transportation are outside the control of the CBN, so I think the approach to dealing with inflation should be that government takes care of the output part, the two must work together”, the former Imo State Commissioner for Finance said.
