Disingenuity of Nigerian Banks by Ijeoma Nwogwugwu

ijeoma.nwogwugwu@thisdaylive.com

Nigerian commercial banks are crying out over the decision by the Central Bank of Nigeria (CBN) to sterilise 50 per cent of public sector funds with the CBN at zero per cent interest. They claim that the latest monetary tightening stance by the central bank has led to a sharp rise in lending rates to the detriment of businesses which need to borrow for expansion and the creation of new jobs.

 

More specifically, two interviews granted to this newspaper at the weekend by the Messrs Godwin Emefiele and Kehinde Durosinmi-Etti, respectively managing directors of Zenith Bank Plc and Skye Bank Plc, blamed the drop in liquidity in the banking system and rise in lending rates on the decision by the central bank to raise the cash reserve requirement for public sector funds to 50 per cent.

In my candid opinion, Nigerian banks are not just being disingenuous but feeding us a whole load of balderdash. Prior to the recent effort by the central bank to mop up excess liquidity, short-term and long-term interest rates were already high. Only a few so-called high net worth customers or blue chips had access to credit that attracted rates of interest of below 20 per cent. All other customers, depending on how banks priced their risk assets, have been forced to borrow at well over 20 per cent. Even where banks deceptively lured customers with interest rates of 18 per cent, hidden and unhidden bank charges inevitably raised the cost of funds to 20 to 25 per cent and more.

Banks have blamed everything from their cost structure to the CBN’s monetary policy regime and lack of credit bureaus for the high interest rates. Even where the central bank has intervened by setting aside special funds for sectors like agriculture, which remains the largest employer of labour in the country and has the capacity to absorb millions of unemployed youths, the banks still shy away from lending to the sector. As a result, lending to agriculture and agro-allied businesses has remained abysmally low at 3 per cent of total banking sector credit.

The bigger irony is that jurisdictions like Lagos, where the introduction of the cashless policy by the central bank should have helped in reducing banks’ cost structure, even if it is marginally, has had no impact whatsoever on the rate of interest charged by the banks.

While it is convenient for banks to individually claim that they have grown their loan books year-on-year, a review of total domestic credit to the private sector in the last six years points to the contrary. Indeed, figures reeled out at the weekend by the Coordinating Minister for the Economy and Minister of Finance Dr. Ngozi Okonjo-Iweala, showed that domestic credit to the private sector as a percentage of gross domestic product (GDP), stood at 25.32 per cent in 2007, grew to 33.9 per cent in 2008, grew again to 38.6 per cent in 2009, then dropped precipitously to 24.9 per cent in 2010. In 2011 and 2012, total credit as a percent of GDP stood at 21.1 per cent and 20.8 per cent, respectively.

It should be noted that between 2007 and 2009, credit growth could be attributed to the post-consolidation era when banks had too much money on their hands and lent with reckless abandon to the stock market (margin lending) and oil marketing sector. 2010 to 2012 covers the period of central bank reforms and when the banks became risk averse.

Even more infuriating is the claim by banks that their strategy is to expand into retail banking, as this has not been premised on providing credit to the deficit segment of the economy. Their primary target, instead, is to mobilise cheap private sector deposits, which are invested in treasury bills with attractive yields.

To be fair, the federal government is partly to blame for the penchant by banks to fold their arms and feed off from the returns from treasury bills. Through increased domestic borrowing, the federal government has crowded out the private sector and made the banks extremely lazy.

In my mind, there is no justification for the interest rates charged by Nigerian banks. For almost two years, the CBN, as a result of the expansionary fiscal stance of the federal government, has kept the monetary policy rate (MPR) unchanged at 12 per cent. Its goal has been to keep inflation in check and the exchange rate of the naira stable. To a large extent, it has succeeded and brought down the rate of inflation to 8 - 9 per cent, but it has hurt the private sector. The tight monetary stance of the central bank notwithstanding, given the low rates the banks pay for customers’ deposits, the huge spread between deposit rates and the MPR, on one side, and lending rates, on the other, remains inexplicable.

The plain truth is Nigerian banks should be called what they really are: Money grabbing institutions that play a negligible role in the development of the economy. The so-called profits they declare are nothing to write home about and should not be celebrated. The structural defect in the Nigerian banking system is a serious issue that the Bankers’ Committee and Economic Management Team need to address. There can be no meaningful economic growth if banks continue to fail in their primary role of intermediation. It is a major cause for concern that the managers of the economy can no longer ignore.


The Nexus between Money Laundering and Rising Home Vacancies

Between 2006 and 2009, real estate in the high-end segment of the market in cities like Abuja and Lagos grew like a plague. Neighbourhoods such as Ikoyi, Victoria Island, Lekki-Epe axis, Maitama, Asokoro, Jabi and Utako, were transformed as demand grew for luxury single unit dwellings and apartments. Economic growth and the stock market bubble propelled the growth in the high-end real estate segment of the market during the period.

At the time, duplexes and 2-4 bedroom apartments fetched annual rental incomes as high as N10 million to N15 million and $60,000 to $120,000, respectively. But the real estate boom all came to a screeching halt when the stock market crashed and the financial crisis in the banking sector set in.

Today, these so-called posh neighbourhoods are littered with vacant houses and apartments while new ones keep springing up with no tenants to take them up. Yet their owners or landlords have not deemed it necessary to reduce the rent on their property, which are decaying from lack of occupancy.

Obviously, there is something wrong with a real estate market that goes against the grain of the forces of demand and supply. The only answer one can fathom is that a lot of the luxury homes and apartments are being built and bought up by corrupt government and private sector individuals who have to find conduits through which their ill-gotten wealth can be laundered. Is it any wonder that the cost of leasing and buying these homes remains exorbitant despite the rise in vacancies?