The biggest problem destroying the economy is the level of interest rate. With the level of interest rate, no one can borrow at 20 percent and have real business. We must make policy decisions that will make interest rate to near zero. The Central Bank of Nigeria (CBN) should either bring down interest rate or one day, we will do it for them”.
This was the submission of Nasir El-Rufai, governor of Kaduna State at the just concluded Nigeria summit by The Economist.
The prevailing lending rates range from 16- 25 per cent, which is adjudged to be high, said Suleiman Barau, deputy governor operations, CBN.
Both the Monetary Policy Rate (MPR) and Cash reserve Requirement (CRR) were reduced at the November 2105 Monetary Policy Committee (MPC) meeting with a view to moderating the rates, among others, but the attainment of this objective remain elusive according to Barau. This is because the combined effects of depreciating exchange rate and the rise in the level of debt stock may manifest in elevated risk premium on government debt instruments.
The overall motivation for reducing the CRR is to deploy banking sector liquidity into the real sector. It needs to be noted however, that such goal could not be achieved instantaneously without some initial challenges like the re-emergence of liquid surfeit. “The need to reverse the policy does not arise, given the nobility of the objective, but the Bank may need to fine tune the liquidity management framework in a win-win manner for the entire system”, Barau added.
But Jude Monye, president, Risk Managers Association of Nigeria (RIMAN), said banks are lending to real sector. “When people say real sector, they are talking about manufacturing, farming, among others. The point is that what basis point of the interest rate and CRR, did CBN drop to? MPR dropped from 13 to 11 percent. Now, who has taken time to see what that translates to in banks?
“What does it translate to in banks’ books, and how much deposit do banks have and what does that two percent drop translate to? If what I have lent to the real sector is almost 30 percent of my total portfolio, I have other obligations. The monies I am holding are not government monies for me to say, let me use it for long term financing. The other funds that I am holding are from people like you that are just giving me up to 30 days”, Monye said in an interview with Journalists in Lagos.
“You cannot do 30 days lending to any real sector. You can’t also do 1 year lending to real sector. So which money in my intermediation process am I going to use to lend? Any regulator who looks at my balance sheet would see gap and would think that asset and liability management here is zero”, he said.
However, the financial system remained very resilient despite the marginal increase in non- performing loans (NPLs) of the banking system from 4.5 percent to 4.8 percent, as a result of banks’ exposure to the oil and gas sector.
Similarly, Capital Adequacy Ratio (CAR) of banks stood at 17.66 percent, as at end- December, 2015- which is well above the prudential requirement of 10 percent.
Overall, the ability of the banking system to withstand current economic headwinds and play its intermediation role is reassuring, Joseph Nnanna, deputy governor, financial system stability, CBN said at the last MPC.
HOPE MOSES-ASHIKE
