The President and Chairman of the Council Chartered Institute of Bankers of Nigeria (CIBN), Prof. Segun Ajibola, has identified non lending to critical sectors of the economy by commercial banks in the country was the reason the country’s economy is recording weak growth.
Ajibola, who spoke at the third inaugural lecture of Caleb University, Imota, Ikorodu, Lagos State, identified the critical sectors as agriculture, small and medium scale enterprises and micro businesses and manufacturing.
His words: “The failure of banks to lend to agriculture, Small And Medium Scale Enterprises (SMEs) and micro businesses account for the weak performance of the economy over the years as bankers demonstrate ostentatious lifestyles, largely at variance with the dictate of the time.”
Speaking on the theme: Rhythms and Riddles of Bank Credit: Synergies and Dislocations in Nigeria’s Economic Growth, Ajibola also highlighted the criticisms that trail banking, banks and bankers in Nigeria and other economies that share common features with the country which should not come as a surprise.
He added that interest rates charged by Nigerian banks are among the highest the world just as he regretted that fraud and other malpractices are on the rise on a daily basis through collusion, insider’s abuse, staff convenience depicting total loss of integrity among practitioners.
He said banks are only interested in quick wins, thereby supporting trade and commerce without due concern for the growth of the real sectors of the economy.
He disclosed that banking originated as a noble profession with trust as a key ingredient.
“The ecumenical origin of banking is well known to most of us. The Goldsmiths of old were entrusted with precious metals and with time, the receipts evidencing the safe-keeping of gold with them became an instrument of exchange for commercial transactions, replacing the age-long trade by barter. Banking thrives on trust and these early progenitors of the modern-day banking architecture never betrayed the trust and confidence reposed in them,” he said.
He said that banks compete with one another in a bid to declaring high profits, often at the expense of the customers and that financial intermediation occupies the center stage in the business of banking and finance.
“When properly carried out, it assures the realisation of the often-mentioned Keynesian multiplier effects in the economy,” he said.
He said that bank credit is a pre-requisite, a necessary though not sufficient condition for sustained economic growth in Nigeria.
“Banks must therefore, continue to play this critical intermediating role in the economy by creating a veritable link between the surplus funds units and deficit funds units of the economy.
“The current apathy towards lending to the real sectors in favour of short term high yield investments is not helpful for the long run growth and development of the economy,” he said.
He, then, advised banks to redefine their lending behaviour to favour longer tenor loans.
“Indeed, tenured loans are more impactful for the real sectors of agriculture and manufacturing in the country. Accordingly, banks should restructure their operations and business templates to directly source longer-term funds in the form of equity, debentures, bonds, tenured deposits to enable them to lend for a longer duration. The current situation wherein bank deposit portfolio is skewed towards short-term deposits constrains their ability to lend to most sectors of the economy for the desired tenor,” he said.
He enjoined the government, bank regulators, deposit money banks and other financial institutions that are purveyors of credit to tighten the rules that govern lending for general commerce, especially imports, to block leakages that usually arise from over-invoicing and other acts of economic sabotage.