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Published On: Tue, Dec 17th, 2019

Bank loans: Elixir of national growth

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By Adetunji Ayobrown

World over, banks are known to be the stimulus that drives any economy, impact of their lending affect in no s mall 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 Nigeria banking sector but an important part of any financial system. Banking institution is more dangerous than the army.
As it dominates the Nigerian financial system and accounted for about 90% of the total assets in the system, it is huge enough and worthy of been put to good used by every citizen. How easy the accessibility is to citizens should be the national question for concern by these banks. Imagine, if former a legislator could not easily access loans to finance his business, how then will it be for ordinary and unknown names among other numerous Nigerians?
Nigeria’s banks are some of the most reluctant lenders in major emerging markets, with an average loan-to-deposit ratio below 60%. Compared with 78% across Africa and according to data compiled, it’s above 90% in South Africa and about 76% 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% 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% 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%, or a quarter are unemployed, definitely not very pleasant, Nigeria’s economy may increase more even 30%. 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%” 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 remove, 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% of their deposits for loans by the end of this year’s third quarter September-December, the CBN ordered in July. Those that fail to will have their cash-reserve requirements increased, meaning they’ll be forced to park 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; 2.1% 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. Wealth happens slowly over a period of time when we turn surplus to something to work for us. They are our banks and this is our lives. We have options.
Wonderful thing about wealth, it’s lying around waiting to be claimed. If we don’t try we don’t get, as simple as that.
Adetunji Ayobrown is a Public Affairs Analyst.

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