By Oluchi Obiozor

 

There seems to be a conscious effort on the part of the Central Bank of Nigeria, CBN, to unlock lending opportunities for the real sector of the economy. At a special meeting of the Monetary Policy Committee, MPC, held in Abuja last week, many policies were adopted as ways of increasing the availability of credit for the real sector. One of such policies is the approval of a N200 billion small and medium credit guarantee scheme.

The credit guarantee scheme is intended to revitalise the productive sector of the nation`s economy which has repeatedly complained of poor access to fund as the major bane to its development. The commercial banks have also been accused of not lending properly to the real sector. And, the Small and Medium Enterprises Equity Investment, SMEEIS, set up in 1999, has failed to bring about the desired transformation of the SME sector. The CBN is optimistic that this new intervention programme will promote access to small enterprises.

Such policy notwithstanding, the apex bank says it will not relent in taking measures that would enhance development of the real sector. The CBN has directed that henceforth, all banks must submit their risk-based interest rate pricing model to the CBN on monthly basis. Such report, according to Lamido Sanusi, CBN governor, will be published. The essence is to ensure transparency and afford borrowers the opportunity to seek credit facilities.

There is still persistent high lending rate despite the current low inter-bank and

deposit rates. Sanusi  is worried  that since the reduction of the Monetary Policy Rates and Standing Deposit Rates which was aimed at encouraging commercial banks to in turn slash their lending rates and boost credit facilities to the real sectors, not much has changed in the lending rates by banks. While credit to government grew by 17.84 per cent in February 2010, credit to the private sector declined, by 1.97 per cent. The annualised growth rate of credit to the private sector as at February 2010, was -11.82 per cent, as against the provisional benchmark of 31.54 per cent for 2010.

The MPC attributes such high lending rate to inefficiency in cost management and unrealistic profit expectations and targets by banks. The MPC believes that promoting transparency in the pricing and setting of rates could help to drive down lending rates. “The banks would also be required to provide a statement showing the relationship between the MPR and their prime and maximum lending rates,” Sanusi explains.

The disclosure of the pricing model to the general public seems good and may achieve one purpose. By providing visibility on relative efficiency of financial institutions, banks may be encouraged to seek profitability by driving down costs and charging competitive rates rather than charging excessive rates of interest.

However, some industry operators say that if the new policy is not implemented strictly, the lending rates will remain high. Bismark Rewane, managing director/chief executive, Financial Derivatives Nigeria Limited, says that unless strict enforcement is put in place, “banks may continue with their below-the-table

dealings which makes them to negotiate rates as against the figures declared officially.”

As another means of ensuring the growth of the economy, the CBN, in its MPC meeting, pegged the refinancing of commercial bank loans at N1 billion as the maximum amount banks may refinance for a single borrower. This is geared towards expanding the scope of beneficiaries of facility refinancing as well as providing security for banks. The MPC says it is concerned about the need for a proper definition of SMEs that will not exclude many potential beneficiaries thereby limiting the effectiveness of the credit guarantee scheme. “In this regard, the MPC noted the existence of several definitions of SMEs but felt that by providing a limit to the size of the loan per borrower from an institution, more potential borrowers would emerge,” Sanusi clarifies.

Besides the different monetary policies adopted, the MPC also did a review of the domestic economic conditions during the first quarter of 2010. According to the communiqué of the MPC meeting, the Gross Domestic Product, GDP, in the first quarter of 2010 grew by 6.68 per cent against 7.24 per cent projected. The year-on-year headline inflation rose from 12.0 per cent in the last quarter of 2009 to stabilise at 12.3 per cent in January and February of 2010. Due to this increase, the MPC observes that “the threat of inflationary pressure in the near-to-medium term remains real” but adds that it will “continue to monitor price developments in the months ahead with a view to creating an enabling environment for sustainable growth and employment.”

It was a

also observed by the MPC that there have been relative improvements in the Nigerian stock market. But, the recovery of the stock market does not translate to economic recovery. The committee, therefore, says that reforms in other sectors of the economy should be facilitated for the economy to grow.

Sanusi assures that the guidelines for all the new policy initiatives will be released shortly. While that is being awaited, operators in the Small and Medium scale Enterprises look forward to an era where credit facility will be given to them at reduced rate and with minimal conditions. 

 

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