Perhaps in response to recent BusinessDay reports on high lending rates and the widening gap between banks’ deposit and lending rates in the country, President Goodluck Jonathan has set up a task force which is already working with the Central Bank of Nigeria (CBN) to tackle the problem.
The task force, BusinessDay was told, is working closely with the apex bank to find ways to boost financing to productive private sector companies in the country.
Nwanze Okidegbe, Chief Economic Adviser to the President told BusinessDay in an exclusive interview that the task force (of which he is a member) is headed by the Coordinating Minister for the Economy and Minister of Finance, Ngozi Okonjo-Iweala.
The task force’s major focus is on the key sectors that have the potential to boost growth and generate jobs, but are currently having challenges accessing finance.
“There are core sectors that we feel growth will come from. For example infrastructure and agriculture. The most recent data says 3.5 percent of the loans that banks give on the average, go to agriculture, but if you look at a five-year average, it is about 2 percent. The President has directed the task force to look into these important sectors that will enhance growth and jobs but are having challenges getting access to finance,” Okidegbe noted.
High cost of and poor access to finance are critical challenges to Nigerian businesses which say it their second biggest obstacle after power.
Last Month, BusinessDay reported that Nigeria’s overnight lending rates soared 10 percentage points to a more than a two-year high of 35 percent, while the gap between lending and deposit rates widened to 2,500 basis points, or 25 percent.
The latest lending and deposit rates released by the CBN show that the highest lending rate is 28 percent, against a deposit rate of 2.69 percent.
Experts repeatedly say this constraint has hindered investment flows to the country and must be quickly tackled, for Nigerian businesses to thrive, be profitable and remain competitive.
A recent World Bank survey found that about half of all firms (in Nigeria) it interviewed, reported that access to finance and its high cost constitute a serious problem to them.
The World Bank specifically found that about 60 percent of firms that applied for loans in 2010 had their applications rejected—far more than in most of the comparator countries like Kenya and South Africa.
Collateral requirements are also incredibly high in the country. Up to 89 percent of loans require collateral, and the average collateral amount is as much as 160 percent of the face value of the loan, compared to about 100 percent in South Africa.
Loan duration is relatively short, as well, the study finds.
The findings, according to the World Bank, suggests that even firms that have loans might not be able to get as much credit as they want and may not be able to finance long-term investment.
The Bank further worries that despite recent advances that have made the Nigerian banking sector more stable and better capitalised, they are not yet supplying the local firms with all the access to credit they require.
The banking regulator, the CBN also corroborates this view.
The apex bank governor, Sanusi Lamido Sanusi recently raised the concern that the significant liquidity on the books of banks has not led to intermediation and lending to the real economy.
Sanusi said the banks have rather continued to take advantage of high yields on government securities to direct credit away from the core private sector and that the liquidity has provided ammunition for speculative activity in the foreign exchange market, with implications for inflationary expectation.
The CBN sold N50.65 billion ($321 million) in 3- and 6-month bills on August 23, at a yield of 14 percent.
Acknowledging these challenges, the Chief Economic Adviser to the President assured that the government was working to tackle them. He said he could not pre-judge what the findings of the task force would be, adding that the key thing is that the President sees this as a challenge and is working to address it.
“Yes we have some challenges, but the government is working hard and taking sound measures to address those challenges, so that the economy will be truly private sector led, be inclusive and will sustain the high growth that we have had in the past years,” he assures.
