By Babajide Komolafe, Yinka Kolawole, Godwin Oritse, Franklin Alli, Amaka Agwuegbo and Naomi Uzor
The impact of the ongoing banking reforms is destroying businesses and Â Â Â has created crisis of confidence in the system, economic operators have cried out, saying the reforms were hastily implemented with no effort to identify the short and long term negative effect on businesses and the economy, and design measures to cushion them.
A cross section of maritime operators,Â real estate developers andÂ Â Â manufacturers as well as financial sector operators lamented that the banking reforms has created more problem leaving on its trail scores of dead businesses, unemployment and low capacity utilatisation.
â€œWhen you mention reform, we had expected that there should have been cushion effects on the economy. The short and long term effects of such reform ought to have been envisaged. I mean, for almost six months no single transaction in the real estate, tell me for how long will one has to wait,â€ lamented Chief Olabode Afolayan,Â National President, Real Estate Developers Association of Nigeria (REDAN)
â€œThe intervention in the banking industry by CBN has created fear in the minds of people generally and no bank wants to take risk of giving loans out to creditors.
â€œSome people actually rely on the credit facilities from the banks because there is no economy that grows without the banksâ€™ involvement.
Some property developers who spoke to Vanguard observed that the economy in the first quarter witnessed severe credit squeeze due to the CBN intervention in bank operations manifesting in a slump in the real estate business as funding was not forthcoming for new property developments.
They also noted that there was a sharp decline in demand for properties, especially at the upper end of the market, such as Ikoyi, Victoria Island and Lekki, some of which have had their valuations reduced by as much as 10 percent.
A facility manager admitted that the banking reforms forced property prices to decline in some areas. They said most of the price fall is due to banksâ€™ debtors selling off their properties below valuation price to enable them settle their debts and thus avoid prosecution by the Economic and Financial Crimes Commission (EFCC).
â€œI think there is a rapid disposal under self-imposed forced sale conditions of property and real estate owned in Nigeria and abroad by the big debtors of many banks in Nigeria. The proceeds of which is being applied toward the prompt amortisation of their loans to avoid prosecution by the EFCC and possible conviction as well as disgrace,â€ he said.
According to MrÂ Lucky Amiwero, National President of the Council of Managing Directors of the Licensed Customs Agents (NCMDLCA),Â â€œThe CBN approach to the reforms is too radical and this has adversely affected the nationâ€™s economy.
â€œThere is a very serious economic dislocation in the maritime sector, people cannot raise as little as N200,000.00 to pay duty and take delivery of their cargoes and so many people are abandoning their containers because banks cannot give them moneyâ€
Speaking in similar vein, Mr Timeyin Olukpe who works with Alraine a foreign shipping agency said that many importers have abandoned their containers in the port for the same reason. He stated that the congestion is gathering momentum and that if it not checkedÂ on time, it will soon uncontrollable as this will further cripple the economy.
Speaking under condition of anonymity, Chief Executive of a Lekki based Microfinance bank (MFB) said, â€œThe MFBs and the micro sectors are the worst hit byÂ the effects of Sanusiâ€™s reforms because of their level of dependence on funds.
â€œOur activities have almost become paralyzed due to our overly dependence on two major sources of funds, which are the depositorsâ€™ fund and funds from commercial banks for on_lending, and the commercial banks are not lending anymore due to the tight measures of the reforms.
â€œOne of the commercial bank that ventured into microfinancing has closed shop and is redirecting all her customers to their main banks. This is to show you that the operating environment has not been conducive due to the reforms of the CBN Governor.
â€œAlso, most grass root people who used to bank with us can no longer do so because they barely have enough to feed with, not to talk of having any savings.â€Manufacturers on their part lamented that the reforms aggravated a bad situation in the real sector.
They complained that due to the approach the CBN Governor, banks have taken risk management to the extreme and in the process denying many firms and ancillary businesses the much needed funds to operate.
Chairman, Board of Directors, Nigerian Breweries PLC, Chief Kola Jamodu, stated that one of the consequences of the sweeping reforms in the banking sector was that access to credit facility remains a major challenge especially to companies and entrepreneurs.
â€œThis had a profound effect on our suppliers, customers, other key partners and consumers,â€ he said.
President, Manufacturing Association of Nigeria (MAN), Alhaji Bashir Borodo noted that long before the banking reform, the manufacturing sector had been on its knees, crippled by protracted infrastructure challenges particularly power.
Operators in the manufacturing sector also suffered from policy inconsistency by successive administration. The banking reforms only aggravated an already bad situation which perhaps, explains why the sector has far witnessed the highest number of job losses in recent months.
President, Lagos Chamber of Commerce and Industry(LCCI), Otunba Femi Deru, in a position paper on the issue stated that the economy in the past few months witnessed severe credit squeeze.
This was ascribed largely to the ongoing reforms of the banking sector.Â The credit conditions took its toll on businesses in the first quarter, manifesting in the following areas: Reduction in capacity utilization of many manufacturing concerns as a result of lack of access to working capital from the banks.
Capacity of many firms to source raw materials was impaired; many consumer product distributors could not access credit to order for products, Abandonment of projects in the construction industry by contractors who could not get funds to complete the projects.
Many of them could also not be paid by their clients; Slump in the real estate business as funding was not forthcoming for new property developments. Also there was a sharp decline in demand for properties, especially at the upper end of the market and Petroleum product importers were severely constrained by funding challenges.
The outcome of the LCCI recent survey on the impact of the banking sector reforms on credit lends credence to this position. Over 95 per cent of the respondents claim that access to credit was impaired in the first quarter.
If this trend continues the consequences for the economy would be devastating. There is therefore an urgent need to unlock the credit market for economic activities to regain momentum.
As a result of the reforms, the banks have taken risk management to the extreme; there is now a phobia for lending and zero tolerance for risk.Â This outlook is neither in the interest of the banks, the investors or the economy. We are faced with the paradox of liquidity glut and credit squeeze occurring at the same time in the economy. This is a contradiction. We need therefore to act quickly to get the economy back on track.
We welcome the ongoing reform of the banking sector and we believe that the CBN leadership means well. We note in particular the focus on the strengthening of risk management, corporate governance and transparency in the banking system. But we need to worry about issues of policy stability and the implications for the system and the economy.
The banking system is fragile and sensitive; therefore, reform of the sector should be carefully managed not to undermine confidence in the system. Transition from one policy regime to the other, should be systematic and methodical to minimize shocks. There should be a soft landing framework as well as adequate consultation with stakeholders to minimise dislocations in the system.