Stop chasing profit, lend to real sector, Onasanya charges banks

Steven Olabisi Onasanya, the outgoing managing director of First Bank Nigeria Limited, the country’s biggest bank by assets, yesterday admonished deposit money banks to be wary of chasing profitability and to focus on their developmental role by lending to the real sector of the economy.

Onasanya’s advice complements the decision of the Central Bank of Nigeria to pump more money into the banking system through reduction in Monetary Policy Rate (MPR) to 11 percent from 13 percent at the last Monetary Policy Committee (MPC) meeting.

“Banks would need to be stronger to play their role in our economy by being catalysts for funding and development of the real sector, rather than chasing profitability by all means, even with destructive tendencies”, he said in Lagos at the Chartered Institute of Bankers of Nigeria (CIBN) third valedictory lecture.

Onasanya said presently, there are no disincentives for shying away from the development role and responsibility, whereas banks that fare better in this area tend to be unduly punished in the public/social media arena.

He said Nigeria needs to take a bold step to address the current deficits on ground, adding that it needs to imbibe a rethinking that can drive a competitive economy, specifically to transit the economy from consuming to an investment mode.

Reacting to the ban on 42 items from the Foreign Exchange Market by the CBN, he said the restrictions have seen output drop off in those sectors of the economy where these imports constitute inputs into production processes.

He wondered if the CBN could thrive in the role of development financing which it has undertaken in recent times to reflate the economy.

According to him, the CBN’s stance on naira exchange rate is clear and should be respected and accepted, in the light of the full support from the government.

He warned banks to be extremely cautious and careful as regards excess liquidity, given current financial market developments, not to create another era of bubbles and bursts in the system.

Onasanya explained that when banks hold too much liquidity (either vide capital or depositors funds), the unwise ones tend to succumb to pressure to sweat the liquidity, thus the temptation to lower risk acceptance criteria, pile up debts, which may appear performing in the short run, but eventually surface as challenged and non-performing, one to two years down the line.

Onansanya was worried that online retail outlets/mobile telephony companies, and their “wallets” threaten to disrupt traditional banking practices by transferring deposits and the yields thereon to non-bank, non-financial institutions outside the control of financial regulators.

“Now we hear of innovation and creativity, disruptive technology, digital banking, everyday banking, with focus on lifestyle and social needs, etc.  These complexities, in my mind, even though depicting a modern age/era, portend increasing challenges for the industry and particularly in one as ours, with a contracting economy”, he said.

HOPE MOSES-ASHIKE