Ministerial nominee, Audu Ogbeh, has joined Afrinvest Nigeria to implore the Central Bank of Nigeria (CBN) to simplify access to loans and boost the overall economy.
Ogbeh wants reduction in interest rate to a single digit if the country must make economic progress.
He lamented to senators while undergoing screening last week that interest rate in Nigeria is “the highest in the world. Unless you are into crime how do you invest at 25 to 30 per cent interest and expect profit?”
He reeled out the names of countries and emerging market economies with low, single digit interest rates, and warned that if Nigeria’s high interest rate is not resolved, the country cannot develop.
Ogbeh echoed voices at the launch of Afrinvest’s 2015 banking sector report in Lagos where the Nigerian business community disclosed that entrepreneurs fail to secure loans because of stringent conditions and hidden charges.
“It is our view that tighter effective interest rate on loans is against the backdrop of regulatory tightening particularly around cash reserve requirements” the report pointed.
According to the report, a gradual easing of the monetary policy condition by the CBN should be considered, which is in line with the agenda of CBN Governor, Godwin Emefiele.
This, it enthused, will ensure lower pricing of risk assets and foster better access by bank customers.
The launch of the report, which coincided with the 20-year anniversary of Afrinvest West Africa, witnessed the presence of Aliko Dangote (Dangote Group President), and Femi Otedola (Forte Oil Chairman) among other captains of industry.
Ike Chioke, Afrinvest Nigeria Managing Director and Chief Executive Officer, said banks in the country would have to ease lending conditions and lend more to the real sector to grow national economic activities in order to survive the next decade.
He noted that even with the vast contribution by the real sector to Gross Domestic Product (GDP), credit to manufacturing, agriculture, and small businesses is very low.
Citing the BRICs countries as examples, Chioke said no country grows with a low lending to the real sector, adding that lending in the BRICs is “much more diversified and do impact more on the real sector than what we have in Nigeria.
“Most of our lending is concentrated in the oil and gas sector.”
Chioke’s remark is in line with the banking sector report, which noted that accessing loan in Nigeria by business organisations is a herculean task.
The report noted that although the CBN has been trying to encourage banks to increase lending to the private sector and channel less funds to investment securities, about 40 per cent of respondents to its survey confirmed that they do not access any form of loan from their banks.
“We attribute this to high interest rate on loans as deductible from the responses of the customers who enjoy one form of loan facility or another,” Chioke stressed.
Some 52 per cent of respondents agreed that loan application processes can be very tiresome, 56.3 per cent noted that loans come with hidden charges apart from interest.
Chioke said the good thing about the report “is that we are witnessing a circle in the sector after the market crash in 2008 and how the banks are bracing up.”
He added that even as international crude oil price declined from $100 per barrel to below $50, the Nigerian banking sector remains resilient.
“Within the banking sector, we have not seen the level of non-performing loans we saw in the past, obviously they are much more careful”, he said, but advised that credit process must be made less cumbersome.
The Afrinvest report said though most banks have thorough processes to ascertain the credit worthiness of customers and build risk management procedures, the process needs to be made less cumbersome and more transparent.
“Also, it is our view that tighter effective interest rate on loans is against the backdrop of regulatory tightening particularly around cash reserve requirements,” Chioke said.
“A gradual easing of the monetary policy condition by the CBN should be considered, which is in line with the agenda of … Emefiele.
“This will creditably ensure lower pricing or risk assets and also foster better access by bank customers.”
In his view, concentration of lending to the oil and gas sector takes a toll on the manufacturing sector as the oil and gas sector – which contributes about 11 per cent to GDP – takes up more than 27 per cent of bank credits.
The power sector, which contributes about 0.6 per cent, takes about 5 per cent of all credit.
Chioke insisted that banks need to be more aggressive to make more money in the years ahead, adding that currently, most Nigerian banks are taking a more dynamic look at cost structure and adopting new online strategies to take customers through electronic transactions, to save cost.
Chioke said fears of recession may be overblown, hence reforms by the government and greater focus on infrastructure will allow banks to reposition their portfolios.
“We have not seen the level of nonperforming loans we saw between 2008 and 2009 as a result. Nigerian banks seem much more resilient and more prepared going forward in the years ahead.
“We are witnessing a cycle in the oil price environment that is very similar to what happened in 2008. And how are the banks holding up to those challenge from $100 per barrel down to below $50 per barrel?
“What is remarkable is that the Nigerian banking sector has withstood that challenge very well, much so than what happened in 2008 and 2009.
“There has been very strong growth performance amongst the tier 1 and tier 2 banks. We have seen top line growth in high single digits, and we have seen bottom line growth in the double digit area.
“So, all the banks seem to have done well, not withstanding what should be a constrained economy”.
The reported noted that the banking sector continues to evolve in line with global trends.
The CBN has been very proactive in building stronger financial institutions since the banking sector crisis in 2009, while also strengthening the capacity of banks to withstand tough macroeconomic environment and other unforeseen challenges.
The report noted that effective service delivery remains a major issue in the Nigerian business space.
Some 68.2 per cent respondents affirmed that the attitude of bank staff determine patronage, which shows that customers view good services in terms of how they visit the banking halls or come in contact with their account officers or any other staff of the bank.
Afrinvest West Africa Chairman, Godwin Obaseki, explained that the launch of the report and the 20-year anniversary celebrate the success of a financial services company.
He said the success of Afrinvest was propelled by workers and high professional ethics, which it has leveraged upon over the years.
He lauded financial partners such as GTBank, Dangote Group, and International Finance Corporation (IFC) for demonstrating faith in the company for high ticket transactions in the global economic space.
Margee Ensign, President of American University of Nigeria (AUN), Yola, stressed the need to collectively cater for those displaced by Boko Haram insurgency in the North East.
Ensign, chairperson of the Adamawa Peacemakers Initiative (API), a local response to the escalating violence, said her organisation promotes peace in the area through education, empowerment, and community development.
API has provided food assistance to about 300,000 internally displaced persons in the past 18 months.
“We believe that our experience and insight on development projects across Africa will be invaluable as we seek to galvanise the private sector to support the efforts of government in rehabilitating those adversely affected by the violence in the north-eastern states of Nigeria,” Ensign said.