Thursday, April 17, 2014

LCCI laments decline in aggregate credit to economy, private sector

Published:

 It is difficult for SME’s to get loans.

There has been a steady decline in aggregate credit to the economy, and the private sector in particular, the Lagos Chambers of Commerce and Industry, LCCI, has said.

According to an economic report from the Central Bank of Nigeria, aggregate net credit by banks to the domestic economy fell by 2.7 per cent and 0.1 per cent in the second and first quarter of the year respectively.

“This is largely due to the sustained monetary tightening, significant rise in government domestic borrowing, and attractive yield of government bonds and treasury bills,” the LCCI said.

The organization said the government has sustained the use of Open Market Operation, OMO; in addition to the higher cash reserve ratio to keep funds out of the reach of the private sector.

“With the planned issue of OMO and Treasury Bill of N854.64 billion to absorb all maturing bills in the fourth quarter, liquidity is expected to remain tighter with the private sector at the receiving end,” LCCI said in a report analysing the nation’s economy for the fourth quarter.

Over the last nine months, the Chambers said it has seen a steady decline in discretionary spending by households and firms, weaker uptake from suppliers and distributors, and softer operating performance among consumer goods companies.

LCCI said that it hopes that its concerns do not degenerate before the next Monetary Policy Committee, MPC, meeting scheduled to hold this month.

“It is important for the monetary authority to commence an adjustment of monetary policy course, albeit gradually, towards boosting private sector credit, domestic demand, employment and growth,” the Chambers said.

High Interest Rates

Available credits from the banking sector have been plagued with high interest rates. Lending rates to agriculture, manufacturing and the oil and gas sectors have reached about 30 per cent, with unofficial rates climbing to about 35 per cent.

Experts say there is limited incentive on the part of the banks to lend to the real economy. Banks will rather maximise the significant spread between low savings and deposit rates and fixed income yields.

The Group Managing Director/Chief Executive, First Bank plc, Bisi Onasanya, said the greatest impediment to the development of SMEs in Nigeria is Access to finance.

“Banks have found themselves in a position where they all rush to lend to those firms that do not need to be so supported. We all rush to give money to multi-national companies, who, if we are not careful, would take those loans from us and plough them back into money market instruments,” he said.

Mr. Onasanya unveiled a framework for single digit interest rate funding for small and medium scale industries in the country recently.

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