Some financial experts on Wednesday advised the Central Bank of Nigeria (CBN) to check the flow of speculative funds into the capital market.
They told the News Agency of Nigeria (NAN) in Lagos that such foreign funds could endanger the naira and destabilise the economy.
Henry Boyo, an economist with Les Leba Ltd., Lagos, said that the ease of entry or exit of such speculative funds could become a problem to the capital market if not checked.
According to Boyo, many Nigerian companies, including banks, have resorted to foreign borrowing because of the cheaper cost of funds abroad.
He said that the irony of it was that the funds, borrowed at lower interest rates, were being given out by Nigerian financial institutions at higher interest rates.
Boyo said that funds from Europe and the U.S. could be made available to local banks and corporate entities at below five percent interest rate.
Read also: CBN and calming of nerves about uncertainties in forex market
“It makes sense for banks to obtain such cheap funds from abroad for on-lending to their customers, but it should not be at exceedingly higher interest rates”, Boyo said.
He urged the CBN to ensure that some of the funds were directed at physical infrastructure or long-term investments like refineries, cement companies and real estate, among others.
Okechukwu Unegbu, a former president of Chartered Institute of Bankers of Nigeria (CIBN), said that some of the speculative inflows were being diverted to other purposes.
Unegbu said that if such funds were channeled to the purposes for which they were meant, they would create employment opportunities and aid development.
He, however, said that some of such funds could be raised from the local capital market if they were for long-term projects.
Harrison Owoh, the managing director, H J Trust & Investment Ltd., Lagos, said that absence of strict regulation on foreign exchange had contributed to the desire for foreign funding by companies.
Owoh said that benefits of the inflow would be defeated if banks borrowed at lower rates and lend to companies and individuals at higher rates.
