The Nigeria Employers Consultative Association has commended the Central Bank of Nigeria on its directive to commercial banks in Nigeria that they should maintain a minimum Loan Deposit Ratio of 60 per cent in order to boost the growth of the real sector.
The Director General, NECA, Mr Timothy Olawale, in a statement applauding the move, noted that it was a welcome development as the real sector had over the years suffered due to stringent conditions to access needed capital.
He said over time, banks had shied away from lending to the real sector, preferring instead to invest in government securities due to the high yield environment.
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Accessing funding was a major challenge for the Nigerian manufacturing sector, Olawale said.
“While the objective of the apex bank is clear as regards improving the flow of needed credit to the private sector to stimulate growth, we are concerned that these unorthodox methods being deployed to achieve this aim may have many unintended negative effects if effective monitoring mechanism is not put in place.”
The attempt by the CBN is worthy of commendation considering our peculiar situation as a nation and the fact that over N1.5tn additional money will be available as credit to the real sector of the economy.
“However, forcing the banks to lend under the current macro-economic situation will only result in a likely build-up of non-performing loans in the medium to long term, given the sluggish growth in the economy and the high risk in the operating environment. This could pose a risk to financial stability.”
Expressing
concern at the level of interest rate, the NECA DG noted, “Another
hindrance to access to the credit is high-interest rates, which remain
at a double digit. With the volatility of the Nigerian economy and the
unpredictable regulatory environment, the risk of a double-digit
interest rate could be too high for businesses, especially the Small and
Medium Enterprises that are supposed to also be beneficiaries of the
directive.”
He
also said, “The CBN should do more than give directives but also ensure
the effective implementation and monitoring of the directive. More
deliberate efforts should be made to ensure a hospitable business
environment that will make lending attractive and borrowing by the real
sector even more attractive.”