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Banks ‘ll be forced to resume lending – Afrinvest

From right: Mr Opeifa Kayode, special Adviser to Lagos State Governor on Transportation, MS edore Onomakpome, head Power and energy project Aid Structured Finance Stanbic IBTC bank and Mr phillip Reyneke at the 5th Lagos State Economic summit Jointly Sponsored by Stanbic IBTC bank at the EKO Hotels and Suite Victoria Island Lagos. Photo: Joe Akintola

By Peter Egwuatu
The current tight credit squeeze in the Nigerian banking sector occasioned by the Central Bank of Nigeria (CBN)’s reforms will soon become a thing of the past as pressures by customers will force banks to resume lending.

The Research unit of Afrinvest Limited disclosed this, stating  “ though banks may still be unwilling to resume lending, they will however be forced to do so over time as they come under increasing pressure from a number of angles; coupled with recent CBN measures taken to encourage lending, shareholders would also begin to press for better returns than what currently obtains (deposits with the CBN at a low rate and money market securities with low yields), thus mounting pressure on the banks to resume lending.

We also believe that the sector will witness even more intense competition amongst operators, which would naturally force them to resume lending as they fight for turf.”

Continuing, it stated , “We also believe that the ongoing review of regulations governing margin lending as well as prudential guidelines on loan loss provisioning will improve transparency and corporate governance in the banking sector. It will also help the banks to more efficiently hedge against risks.”

While reviewing the economy in the first quarter of the year 2010, Afrinvest Research further re-iterated its position that the N500.0billion  facility for emergency power projects is a step in the right direction.

It should be noted that following the conclusion of the special Monetary Policy Committee (MPC) meeting of April 15, 2010, a summary of the key policy decisions as contained in the communique show:

MPR is still retained at 6.0per cent, with an asymmetric corridor of +2.0 per cent and 5.0 per cent ; Technical Committee’s recommendations on the injection of the N500.0billion financing facility for the emergency power projects for industrial clusters, as well as modalities regarding the refinancing/restructuring of banks’ exposures to the manufacturing sector and Small Medium Scale Enterprises( SMEs) approved; Banks required to submit their risk-based interest rate pricing models on a monthly basis.

Loan pricing should henceforth be stated at a fixed spread above Monetary Policy Rate (MPR) and adjusted along with MPR movements; Complementary policies being put in place by the CBN Board endorsed, including the revised guidelines for loan loss provisioning, the N200 billion guarantee for real sector lending and regulations governing margin lending; CBN to continue its efforts towards the expedited passage of the Assets Management Company of Nigeria (AMCON) Bill and its speedy implementation.

According to Afrinvest, provisional data from the National Bureau of Statistics (NBS) show that in first quarter, 2010, real Gross Domestic Product (GDP) grew by 6.68 per cent, largely driven by the non-oil sector. Overall GDP for 2010 is however projected at 7.53 per cent, with the non-oil sector still expected to be the main driver.

The year-on-year inflation fell to 11.8 per cent in March 2010, from 12.3 per cent in February 2010. This could be attributed to numerous factors, including the on-going money contraction, delays in the passage of the 2010 federal budget and the improvement in the supply of petroleum products.”

The MPC re_stated its position that the risk of inflationary pressure in the near_to_medium term remains real; it however asserted that it will continue to monitor price developments to facilitate an enabling environment for sustainable growth and employment.

The MPC also observed that retail lending rates have remained stubbornly high despite the significant fall in interbank rates, deposit rates and the Standard Deposit Facility rate.

This, according to Afrinvest s has therefore resulted in a wide spread between lending and deposit rates. Banks are still unwilling to lend to the real sector, given their rather reticent approach to the creation of new risk assets. “ The MPC is therefore trying to establish a proper transmission mechanism from policy rate adjustments to market (interest) rates and, hopefully, channel funds from the banks to the real sector ” Afrinvest noted.


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