By Babajide Komolafe & Michael Eboh
Managing Director/Chief Executive, Standard Chartered Bank Nigeria, Mr. Christopher Knight, has called for policy to provide support for risky businesses as part of measures to unlock the flow of banksâ€™ credit to those areas.
In an exclusive interview with Vanguard, Knight listed capitalisation, support for risky businesses and credit bureaus as critical factors to get banksâ€™ lending to flow into the economy.
He said â€œI think three things are needed to be put in place in order for the Nigerian banks to start lending again.
â€œOne, the issue of capitalisation. Banks need to, especially the ones that are more stressed, increase or find new capital. Itâ€™s not going to be easy because globally investors have been burnt and are probably investors are a bit shy to invest again. But it has to happen.
â€œOne way this can happen is creation of the asset management company. Where the asset management company will actually buy some of the non performing loans at a discount?
â€œYes, because actually it would be giving money back to the banks, so this will give them the wherewithal to start lending again.
â€œThere are some areas that I believe the government should help. And that would be, if you take care of letâ€™s say the risky areas traditionally such as the SME sector.
â€œIt is so risky because quite often they are smaller businesses, they donâ€™t have the same kind of management skill, and they donâ€™t have the same kind of financial reporting.
â€œThose two elements make it rather difficult for banks to lend. So if the government or the central bank will have a policy where they would stand behind to some degree or guarantee either in whole or part behind this sector, it would get credit flowing to this sector.
â€œActually I was at a meeting this morning with the central bank and my understanding is they are actually thinking of something like this and I think it would be good.
â€œFinally, the third point which I can think of is that, we now have some credit reference bureaus in Nigeria; I believe they are three that are operating.
â€œI would encourage that all the banks are required to give their data on loans to those credit bureaus. This will help in banks looking at new transactions.
â€œThe reason for this is there is something that is called asymmetrical information. If I, a borrower, come to a bank, I know what my intention is whether or not am going to pay back the loan.
â€œThe bank doesnâ€™t know, but if the bank can go to a credit bureau and see how as this customer repay past loans, that might be a good indication of how I might treat the next loan. So this would help banks to start lending also.â€
He said despite the impact of the banking crisis, Standard Chartered has been opened to business and lending to businesses that meets its financial criteria. He said, â€œStandard Chartered is very much open for business. We are, I believe,Â seen as one of the banks that represent flight to safety for depositors in particular. But also we have noticed that a lot of companies have been turning to us because we have been open for business all through.
â€œPart of the challenge is that we are demanding from the point of view of our financial criteria. And I must say that is also a basis for competition which is healthy. I mean if you have a country with a large number of banks, not all the banks will have the same criteria.
â€œThere is not necessarily one strategy that is right or wrong,Â each bank has to has its own, and do what they have the talent and skill to do.â€