Government warns against prohibitive interest rates on loans as a disincentive to productive activities.
The Federal Government on Tuesday took a swipe at the country’s deposit money banks (DMBs) for not impacting positively on the economy, in spite of the significant support and incentives extended to them by the government.
Minister of State for Finance, Yerima Ngama, said, at the annual conference of the Chartered Institute of Bankers of Nigeria (CIBN) in Abuja that DMBs must review their strategies and adopt new business models that would reverse the ugly trends of high lending rates and massive turnover of professionals from the banking sector.
DMBs are banks that have any liabilities in the form of deposits payable on demand, transferable by cheque, or otherwise usable for making payments. Nigeria’s DMBs include First Bank, Zenith Bank, UBA, and Access Bank.
Mr. Ngama frowned at the banks for contributing little to the Gross National Product (GNP) and encouraging high interest rates on lending, saying this has made credits inaccessible to small and medium enterprises, farmers, and manufacturers.
Rather than lend to the real sector and farmers, the minister noted that the banks have continued to show preference to financing short-term import trade, thereby contributing to the crisis in the real sector and the volatility of the foreign exchange market.
“This cannot be sustained and it is therefore necessary for us to review our business model to ensure that the banking industry takes its rightful place in financing the vital sectors of the economy,” he said.
According to the minister, the trend of lending by the banks showed that out of a total of about N6.42 trillion and N7.18 trillion loans and advances from the banking industry as at December 2011 and June 2012 respectively, contributions to agriculture received marginal 3.35 per cent and 3.45 per cent, while power and energy sector got a paltry 0.39 per cent and 0.81 per cent during the same period.
He pointed out that with general commerce and importation of petroleum products maintaining a steady lead over the years, the banks have indirectly lend themselves to supporting the productive base and capacity of other countries to the detriment of the country.
“Since 1989 the government, through the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation, has intervened to save the banking industry. In fact, the banking industry is the most protected in Nigeria,” the minister said.
Mr. Ngama identified pricing of loans and advances being promoted by the banking sector as other factors affecting the country’s economic growth
He said the prohibitive interest rates of about 20 – 25 per cent charged on loans have remained a great disincentive to productive activities and that banks have become obsessed with import financing which exposes the country’s local currency to further pressure.
The Nigerian Chamber of Commerce had, on Tuesday, said 800 manufacturing companies were shut down between 2009 and 2011. High bank interests rate and inadequate financing were cited as some of the reasons the companies closed shop.
Mr Ngama urged the banks to place more emphasis on knowledge and other critical intellectual and professional capacities of workers as opposed to deposit marketing, in order to reverse the ugly trend of unskilled labour in the industry.