How To Achieve 60% Credit To Real Sector, Others
By Chukwumah Kelechukwu
For the new directive to commercial banks to improve credit to 60 percent of deposit to work, the Central Bank of Nigeria (CBN) will need to urgently address hindrances to lending so as to avoid a rise in non-performing loans.
Financial analysts who spoke exclusively to InsideBusiness at the weekend, the analysts said the CBN has to derisk sector credits especially in the manufacturing, SMEs, and the agriculture sectors where huge credit risks exist.
Dr. Vincent Nwanni, an Investment and Business Consultant, said the apex bank need to galvanise government agencies to effectively derisk loans as much as possible by addressing some debilitating infrastructure deficits stoking incidence of bad loans in the economy.
The former Research Analyst of the Lagos Chamber of Commerce and Industry (LCCI) noted that infrastructure deficits and other hindrances like bad roads, epileptic power supply, security crisis are driving operational costs of industries above average and taking toll on investors.
“There are no good roads to move produce from farm to factory, and from factory to the market. Security issues, lack of energy, and other challenges should be addressed. If these are addressed, the risk of loans going bad would have been addressed.
“Let the CBN do a little bit more to galvanise government agencies to be a little bit more effective to derisking loans as much as possible. At least, let them have stable power as 35 percent of operational cost of SMEs and manufacturers is incurred by providing alternative power supply. If something is done in that regard, the incidence of bad loans will be reduced,” said Dr. Nwanni.
Corroborating Dr. Nwanni, the Head of Research FSDH Merchant Bank Limited, Mr. Ayodele Akinwunmi, said it is important to address those hindrances to lending in Nigeria, otherwise lending in the name of complying to meet regulatory requirement may lead to a rise in non-performing loans.
To underscore the enormity of lending 60 percent of banks’ deposits, Akinwunmi pointed out that over N1.5trillion additional money will be available as credits to the real sector of the economy should the banks comply with the CBN directive, stressing that the banks would have huge challenges to manage if the loans turn out bad.
“If bank are to comply with the directive from the Central Bank of Nigeria, over N1.5trillion additional money will be available as credits to the real sector of the economy. It is also possible that commercial banks may sell down some of their holding of fixed income securities in their portfolio to enable them meet the regulatory requirement, this may lower price with a possibility of increasing yields on fixed income securities.
“However, it is also important to address those hindrances to lending in Nigeria, otherwise lending in the name of complying to meet regulatory requirement may lead to a rise in non-performing loans,” the financial expert warned.
Only last Thursday, the lender of last resort barred banks from buying bills for their own accounts at an open market auction held on Thursday, a move intended to force them to lend rather than invest in government debt.
In recent time, the CBN has been stepping up its developmental disposition by issuing directives to get commercial banks to lend 60 percent deposits to real sectors, a measure aimed at reviving Nigeria’s struggling economy. It also limited the size of interest-bearing deposits it would hold for banks.
But analysts insist that these measures will amount to nothing if the hindrances to lending are not effectively addressed.
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