Banks, Environment Fuel High Interest Rate- CBN

Central Bank of Nigeria (CBN) has accused banks in the country of fueling the high interest rate ghost killing employment creation drive and generally haunting the country, Nigeria CommunicationsWeek can report.

Mr. Tunde Lemo, deputy governor, Operations of the apex bank, said, that the banks are unconsciously passing part of the high cost of operating financial institutions on borrowers.

Lemo, speaking to Nigeria CommunicationsWeek on the sidelines of  the one-day forum organised by the Manufacturers Association of Nigeria (MAN) in collaboration with InterSwitch Limited for manufacturers and retail marketers, he said that banks battle stressful operational issues, particularly the infrastructural deficits that have been the bane of businesses in Nigeria.

He said: “It is the infrastructural factors, in such that if I were in Europe with a branch of a bank I will not burden my head about generators; neither will I be burdened about the number of security men to engage.

 “I have my hand made, because the area is already secured. We can go on and on as far as infrastructure is concerned. It is because of the infrastructural deficit that made banking very expensive in Nigeria. However, there are legacy issues. Government is dealing with the infrastructure, particularly Mr. President’s transformation agenda.

 “We are dressing that very seriously and we are expectants that soonest we are going to see better infrastructure around us. Until that happens, of course, we have to understand why interest rate is high.

 “We are also using moral situation to urge the banks to tune down their profit motives which is why convinced them to drop the maximum COT charges from 5% to 3% with a commitment also that in the next 5 years it disappears from the customers books. I think we are heading in the right direction and things will get better as we go”.

The CBN’s Deputy Governor, Operations, reiterated that the apex bank would continue to provide soft landing for the banks and other sectors through deliberate policies to fan down inflation in Nigeria.  

Speaking further on the light of cashless policy and e-payment systems in Nigeria, Lemo, said that prior to now only 2% of payment activities go through electronic channel.

“Today, it is approaching 20 million and we can imagine that from Point of Sales (PoS) we are having transaction value of over half of billion daily, numbering upto 40,000. Is that were we should be? No, I think we can still rant it up rapidly, which is the reason we are extending the frontiers to six other locations. We are dealing with the challenges and we are working with other stakeholders to ensure Nigerians embrace cashless policy better than we have done so far,” he added.
 
But Dipo Sonowo, an economist told Nigeria CommunicationsWeek that the CBN had no excuses for failing to reign in the excesses of financial institutions which lend arbitrarily.

According to Sonowo, CBN’s monetary policy direction and the fiscal policy objectives of the executive branch of government must be in harmony to avoid conflict in the product of their respective actions.

He said that the high interest rates was induced by CBN’s policies to deflate the real sector and therefore must not blame any bank for the skyrocketing rates.

Only recently, Dr. Ngozi Okonjo-Iweala, minister of Finance, said that the current regime of interest rates in the country was too high for the productive sector of the economy.

Speaking while inspecting a cold rolling mill facility in Ilorin, Kwara state, Okonjo-Iweala, described the 20 percent lending rate being charged by commercial banks on loans obtained by industries as outrageous.

But CBN’s body posture suggested that it is more concerned with managing inflation than controlling the spiraling rates.

For instance, the CBN monetary policy committee has kept monetary policy rate at 12 percent in the bid to tame perceived threat of inflation.

Monetary policy rate is the barometer that swings the direction of interest rate in an economy.