August 24, 2018 / 5:46 PM / a month ago

Nigeria's central bank to stimulate lending, buy corporate bonds to boost growth

ABUJA, Aug 24 (Reuters) - Nigeria’s central bank plans to stimulate lending to manufacturers and invest in corporate bonds to revive the economy ahead of next year’s presidential election.

The bank on Friday said it wanted to increase the flow of credit to help sustain economic recovery after Nigeria exited its worst recession in quarter of a century last year.

Africa’s most populous nation has bank lending rates sometimes as high as 30 percent, making them one of the main barriers to growth. Under the new stimulus plan, the bank said it would provide lenders with funds to offer to manufacturers at a rate of 9 percent.

President Muhammadu Buhari plans to seek a second term in office next year and his record on managing the economy will be closely scrutinized. The president faces divisions within his ruling party after some of his major supporters defected to join the opposition party last month.

“...banks would henceforth be incentivised to direct affordable, long-term bank credit to the manufacturing, agriculture, as well as other sectors considered ... as employment and growth stimulating,” the central bank said.

The central bank has maintained a cash reserve requirement of 22.5 percent for banks and kept benchmark interest rates at a high of 14 percent for over two years to counter inflation and support the naira after the 2014 oil price slump triggered a recession in the west African economy.

Growth is still fragile and lending to businesses has shrunk. Nigeria’s statistics office is due to release second quarter gross domestic product (GDP) data on Monday.

The central bank said it would release part of the cash deposited by banks at the regulator for lending to businesses and that investment would focus on projects that boost local production and cut demand for foreign currency.

It set a maximum of 10 billion naira ($33 million) per project for bank lending on a seven-year minimum tenor. Funds would not be used to refinance existing loans, it said.

It will also invest in corporate bonds of at least 7-year tenors of local companies registered in Nigeria, the bank said, adding that companies would need to demonstrate that its projects require long term funds and would generate employment to qualify for central bank money.

Nigeria, with a population of around 180 million people, relies on imports for consumption due to its limited manufacturing base. In the past lenders have shied away from lending to manufacturers due to the absence of a ready market for their products and high operating cost.

This year several lenders expect to boost loans. ($1 = 305.10 naira) (Reporting by Chijioke Ohuocha)

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