Editorial

Bank loans elixir to national growth

 

World over, banks are known to be the stimulus that drives any
economy. Impact of their lending affect in no small measures as shown
on the economic growth of any nation, especially that of developing
ones like Nigeria. How the developed nations used banks to develop
their people through soft loans and the likes is rather a good option
to be considered. Not only in the Nigerian banking sector but an
important part of any financial system.
As it dominates the Nigerian financial system and accounted for about
90 per cent of the total assets in the system, it is huge enough and
worthy of being put to good use by every citizen. How easy the
accessibility is to citizens should be the national cause for concern
by these banks.
Nigeria’s banks are some of the most reluctant lenders in major
emerging markets, with an average loan-to-deposit ratio below 60 per
cent. Compared with 78 per cent across Africa and according to data
compiled, it’s above 90 per cent in South Africa and about 76 per cent
even in Kenya.
According to The Economist, Financial Times and other international
reports, the banking sector has not contributed significantly to the
growth and development of the Nigerian economy as expected.
Performance of the sector has been considered to be bedevilled by
numerous problems such as inadequate capital, high nonperforming
assets leading to frequent distress in the sector and collapse of
banks in recent past.
Risk-averse by Nigerian banks refused lending to businesses and
consumers and instead piled their cash into naira bonds, which yield
14.3 per cent on average; one of the highest rates globally that will
help the economy. Lenders worry that with inflation at more than 11%,
extending more credit could endanger the financial system through an
increase in non-performing loans, or NPLs.
Though to spur the economy, banks were ordered to loan more money but
many local and international studies carried out to examine the impact
of these lending on the economic growth show that it had not yielded
expected results. Perhaps, if only the loans recommended are truly and
effectively implemented.
Central Bank of Nigeria (CBN) sets 60 per cent loan-to-deposit ratio
target for banks in an effort to boost economic growth in Africa’s
most-populous country, Nigeria. Though some analysts were sceptical
whether the new measures will work. Unemployment is still a persisting
scourge according to statistics. Population by projection, 200 million
persons, 25 per cent, or a quarter are unemployed. This definitely is
not very pleasant. Nigeria’s economy may increase more than 30 per
cent. High rate of unemployed youths who are ready to work are
lamenting, even the Minister of Labour and Employment is not left out.
In order to increase growth of the Nigerian economy through investment
in the real sector, lending to small businesses and consumers and
mortgages will be good. These sectors shall be assigned a weight of
150 per cent” when computing the loan-to-deposits ratio.
CBN’s order ‘lend more money, or hand it over to the central bank and
earn nothing on it’, effects of which the economy and many small
businesses are yet to feel. If the lending rate is lower and other
financial obstacles removed, it will not only attract borrowers but
drive the economy faster and perhaps better. It is doable, if will put
it into consideration and set it as target.
Banks should use at least 60 per cent of their deposits for loans by
the end of this year’s third quarter September-December, the CBN
ordered in July. Those that failed to do so will have their
cash-reserve requirements increased, meaning they’ll be forced to pack
more money at the central bank.
Yes, banks may have been told to lend, or hand money over to CBN, but
is the apex bank monitoring compliance? If yes, when should Nigerians
expect tangible results is the pressing question that CBN and other
banks need to answer.
The Nigerian economy has been struggling to recover from a full-year
contraction, according to reports, in the past year. You dear 2.1 per
cent expansion is expected this year, according to the International
Monetary Fund (IMF).
The order to boost lending or have access to risk-free assets
restriction order should sincerely be enforced to stimulate needed
elixir in the Nigerian economy.

Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button