Addressing physical infrastructure to enhance bank lending

Comprehensive reforms that would address physical infrastructure such as energy, road, fuel and soft infrastructure like rules and regulations should be instituted in the Nigeian banking sector. This will help create an enabling environment for lending to the economy by deposit money banks (DMBs).

This was the view of Adelabu Adebayo, deputy governor, corporate services, Central Bank of Nigeria (CBN), in his statement at the last Monetary Policy Committee (MPC). He reflected about the uncompetitive nature of the business environment which results largely from structural rigidities within the economy.

For instance, available statistics revealed that the banking system is currently facing liquidity surfeit given the extremely low interbank and OBB rates but growth in credit, particularly to the private sector at 3.49 per cent in October is highly disturbing. This development simply reflects negative perception of the banking system to lending due mostly to harsh business environment.

‘It is instructive at this point that structural reforms that address inherent bottlenecks in the economy must be tackled frontally”, he said at the MPC meeting.

He said the present lending rate regime does not offer prospects for the manufacturing sector particularly small and medium scale enterprise which possess the capacity to reduce the army of unemployed citizen. As such, there is compelling need to address the issue of high lending rate holistically.

The concern is further reinforced by the threat to banking system stability arising from the high non-performing loans (NPLs) on exposure to the oil and gas sector. “I am of the opinion that a reasonable proportion of banks’ exposure to oil and gas could have been in foreign currency with the interest thereon being more responsive to foreign monetary policy than domestic monetary policy. Thus, with the expected normalization of monetary policy by the US Fed, there is the likelihood of upward re-pricing of these facilities, further impairing borrowers’ repayment capacity. In view of this, reduction on domestic interest rate could provide some comfort to the banking system. Consequently, I am of the view that the MPR should be adjusted downward”, Adelabu said.

According to him, there is rising threats to the stability of the banking system on the backlash of increasing Non-performing Assets due to huge exposure to oil and gas sector. As expected under this kind of scenario, unemployment continues to head northward as the latest statistics from the National Bureau of Statistics, revealed that unemployment accelerated to 9.9 per cent in 2015q3 compared to 9.7 in the corresponding period of 2014.