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Sanusi charges banks on joint IPP, services

By Sola Ogundipe
LAGOS—Nigerian banks have been urged to set up joint independent power partnerships, IPP, as part of strategies to rise up to the challenges of the current power crisis in the nation.

Central Bank Governor, Mr. Lamido Sanusi, who said this in Lagos, noted that one of the new policies of CBN was to encourage banks to reduce running costs.

Sanusi, who was a guest panelist at the third forum of the Partnership On Trade Industry and  Commerce, POTICO, argued that banks were being unnecesarily bogged down by overhead costs arising from power production, among other needs, as a result of which they were compelled to introduce high interest rates.

He lamented that the banks are carrying a disproportionate burden for the inefficiencies of the economy.
According to him: “Check a bank like UBA, it has over 600 branches; in every branch you need a generator and because there is no power, PHCN has become the standby. For 18 hours in a day, those generators are the sources of power.

All these costs get fed into the cost of maintenance because the banks obviously have to get the returns.”
According to the apex bank governor, ”We are beginning to address these issues.One of the ideas I have put on the table is this; why don’t all the banks get together in Lagos, for instance, and set up one IPP that would provide power to all bank branches and save all banks from having generators and diesel in Lagos?

“If banks can have an IPP that provides them with power, they can save  no less than half of what they spend on electricity per annum and this would bring down the cost of production.

”We are also talking about shared services. If you look at all the banks, each  maintains a data centre, there is a bank office operations and processing centre, and all these are costs added to the customers. Why can’t the banks have a common back- up office? Why do we need different back offices? Why can’t we standardise the banking processes?

Why does every bank have its own cash movement? Why does every bank have to have its own ATM? he queried.
Sanusi, who spoke on “Harnessing Innovative Technologies to Develop Infrastructure for Sustaining Agriculture and Food Security,” said CBN was rising up to the issue. “We have a process that kicked off this week, and it is expected that in the next three years, it will break down overheads in the industry by more than 30 per cent.”

This will translate into lower lending rates.”

I come from a credit management background, and try to think of the various areas that would concern the banks. We have had the trouble of addressing risks of losses, risks that are insurable, risks of capacity through technical assistance. If we can address these from the creditor perspective, we’ll be able to give clarity to the issues on hand.

On the question of interest rates of banks on agriculture, he said :”The CBN is addressing this from two perspectives. First is from the issue of lending rates from the economy worldwide. In the last few months if you watched closely, overall market rates have been on the decline you may not feel it at the level of enterprise, because the drop has been 2-3 percent, but the large corporations have felt it.

There are many company’s in Nigeria today that are borrowing at single digit interest rate. It has never happened in the history of this country. When we start publishing the weighted average lending rate,  I can tell you that a company like the Dangote Group now has about N110billion in facilities priced at 8.5 per cent. Dangote said since he started business in Nigeria, he has never received a single digit offer.

A policy of the CBN that very high real interst rates are inconsistent with our aspiration for economic growth, so we are pursuing low interest rates.”

In his view, “The final thing is that the mistake the CBN has been making in the past is to say to the banks, let’s agree on what you can charge. You cannot dictate to a bank what rates it can charge.

One of the things we are going to put on the table, this is a concept paper that is being developed, we like to introduce a swop for interest rates. So if a bank is lending to a farmer at 17 per cent, that is fine. But we will make it possible for the bank to swop that floating rate for a floating rate of 10 per cent with us. which we say MPR + 11 which is 17 per cent swop that with a fixed rate of 10 per cent with us. you charge the farmer 17 per cent, the farmer gives you 10 per cent, you give CBN the 10 and take 17 per cent from the CBN, that way, you are not asking the bank to do the subsidy because government which is trying to promote agriculture will absorb the loss.


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