NECA Worries over CBN’s Directive to Banks on Lending

Nigeria Employers’ Consultative Association (NECA), has raised concerns over the Central Bank of Nigeria’s (CBN) directive to banks on lending, saying it could pose a risk to financial stability.

Mr Timothy Olawale, director-general, (NECA) in a statement at the weekend in Lagos said that effective monitoring mechanism should be put in place to avert the negative effects.

NECA is the umbrella organisation of employers in the organised private sector of Nigeria.

Olawale recalled that CBN had on July 4, directed commercial banks in Nigeria to maintain a minimum Loan Deposit Ratio (LDR) of 60 per cent.

According to him, this is aimed at promoting growth of the real sector of the economy.

“The objective of the Apex Bank is clear as regard improving the flow of needed credit to the private sector to stimulate growth.

“We are concerned that these 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 N1.5 trillion additional money will be available as credits 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 of the economy.

“Also, the high risk in the operating environment, this could pose a risk to financial stability, ” he said.

The director-general also identified high interest rates, which remained at a double digits as a challenge to businesses.

“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.

“This is especially for the Small and Medium Enterprises that are supposed to also be beneficiaries of the directive.”

He urged CBN to ensure the effective implementation and monitoring of the directive.

According to him, 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.