The Senate has lamented that the current regime of high interest rates; between 28-30 per cent for the private sector, have continued to place a major burden on business investments, thereby negatively impacting the survival of Nigerian businesses.
The Senate noted further that only about three per cent of Small and Medium Scale Enterprises (SMEs) have access to credits from banks, even though they employ about 88 per cent of the national workforce, and are considered the backbone of the economy.
The upper legislative chamber therefore resolved to organise a round-table session with the Central Bank of Nigeria, Nigeria Deposit Insurance Corporation, industry experts and other stakeholders with a view to finding immediate, sustainable and lasting solutions, that would usher in a new interest rate regime that supports enterprise development in Nigeria.
The resolution followed a motion sponsored by the Chairman, Senate Committee on Banking, Insurance and other Financial Institutions, Senator Rafiu Adebayo Ibrahim (Kwara South) who noted that several developing nations have kept interest rates low and competitive.
“The current MPR of 14% has remain so, and very high compared to other developing nations such as Brazil; 10.25%, Kenya; 10%, South Africa; 7%, Rwanda: 6.25%, Bangladesh; 6.25%, Botswana 5.50%, and many West Africa countries with single digit MPR some as low as 2.95% (Cameroon),” he said.
Ibrahim said despite negative indices, banks continue to declare huge profit earnings and profitability, which as at March 31, 2017 increased significantly by 151.02% as Profit Before Tax stood at N186.1 trillion as against N74.1 trillion in December 2016.
“Worried that most of this profitability are derived from investment in risk free government securities such as treasury bills and bonds. Worried that the reported explosive increase in net credit to the government in April 2017 annualised to 72% compared to a programmed rate of 33.12% for the year and the significant decline in credit to private sector below 14.88% target for 2017,” he added.
These, Ibrahim noted, pretend grave challenges for future macro-economic stability if allowed to entrench, crowding out private sector borrowing from the economy.
“Lending rates to the private sector has hovered between 28% to 30% across board in 2017, if we are to make the necessary reforms of the economy work, we cannot neglect the challenges that increasing rates pose to the survival of business.”
He urged the CBN and Deposit Money Banks under its purview to adopt strategies that will lead to reduction on lending rates in the short to medium term, especially in the interest of nation building and poverty reduction, rather than profit making only.
Contributing to the debate, the Deputy Majority Leader, Senator Bala Ibn Na’Allah, said the apex bank seems to be losing control of the banking sector, and queried whether the nation’s banking sector qualifies to be called a banking sector that is sensitive to national development.
“First, we must admit the fact that we have one of the most unpredictable economies in the world and the reason being that the CBN has lost its grip (on the sector). In one day it is the regulator and participant in the banking industry and in another day it even goes outside its mandate.”
“What explains this is simple: our investors in the banking sector have constituted themselves into a cartel and, therefore, they possess the capacity to manipulate the fiscal and monetary policies, and ensure that at no time will the two come together for the purpose of stabilising the economy. When it stabilises, they become the losers,” he alleged.
Presiding, Senate President, Dr. Bukola Saraki said while the CBN has made appreciable progress at boosting the value of the Naira, attention need to be focused on lowering interest rates.
“There is no doubt that this is an area where we must provide leadership. There are always the issues of exchange rates and interest rates. As of now, it is always clear that the CBN has, to some extent, made a lot of progress in addressing the issue of exchange rate,” he said.
“We now have a problem with the interest rates and it goes beyond the monetary institution, it includes the fiscal authorities because we cannot live in a society where companies are closing up or sacking people and the institutions declare mega profits. That means there is something wrong there,” the Senate President added.