By Babajide Komolafe
* Dismisses allegation of excessive profits
*Former House of Rep member calls for 100% sterilisation
Managing Director/ Chief Executive, FirstBank of Nigeria Limited, Mr. Bisi Onasanya has called for caution in the implementation of the 50 per cent sterlisation of public sector deposit.
He also dismissed allegations that banks are making excessive profits, saying that any attempt to reduce the profitability of banks would weaken the nation’s capital market, and reduce the attractiveness of Nigeria to foreign investors.
Last month the Central Bank of Nigeria (CBN) effectively sterilised about N1 trillion public sector deposits, when it raised the cash reserve requirement (CRR) on public sector deposits to 50 per cent from 12 per cent. Public sector deposits refer to deposits of ministries, departments and agencies of federal, state and local governments with banks. The aim of the policy was to tighten money supply, so as to reduce idle funds in the banking industry and curb inflation. It however occasioned sharp increase in interest rates by about 200 basis points.
Onasanya warned that the policy should be implemented with caution as it might lead to decline in loans to small and medium enterprises.
In a keynote address delivered at the Lagos Bankers’ Night organised by the Chartered Institute of Bankers of Nigeria (CIBN), Lagos State Chapter, he said, “Whilst there are still debates around the recent moves of the central bank and the government to sterilise public sector funds due to interventions from the regulatory authorities as part of their macro-prudential responsibilities), I believe there must be a clear framework for interpretation that adopts practical and pragmatic means of identifying qualifying accounts for sterilisation as the misapplication of compliance may have certain drawback effects on the availment of credit especially for the real sector of the economy, and in the SME space.
“We must be careful to ensure that the sterilisation does not extend to accounts and funds that are not in class of public sector deposits. What this does is that we may find ourselves in a situation where the much needed liquidity in the banking system is strained to such extent that it becomes difficult for banks to grant credit and loans which are much needed for the development of the economy”.
But a former Chairman, House Committee on Finance, Honorary Leonard Dilkon, called for 100 per cent sterilisation of public sector deposits, saying the policy will make banks to invest in wealth and job yielding ventures that would stimulate growth.
Speaking to News Agency of Nigeria, Dilkon, who is the Executive Chairman, Hamtul Press Ltd, a Jos-based large scale printing outfit, argued that the banks had not helped the economy much as they “merely collect monies from local, state and federal governments”.
“The banks collect monies from all tiers of government and give them out as loans to the same governments. Such monies are deducted at source with heavy interests.
The banks do not support any business initiative; when you are building your business, the banks will not be there to support, but once you have established, they come for deposits. Banks hardly support small scale industrialists and may not even care if they ever existed. The commercial banks hardly seek out ways to help the society,” he claimed.
He suggested the withdrawal of, “up to 100 of government deposit from the commercial banks”, adding that the commercial banks were “exploiting depositors by collecting Commission On Turnover (COT),” even when they had no input on such turnover. He stated the banks could do more in addressing the problem of violence in most parts of Nigeria, by stimulating the economy.
Defending the huge profitability of banks, Onasanya said, “Let me speak to the perception that Nigerian banks are making excessive profits. Let me say that the Nigerian capital market today, relies extensively on the performance of the financial services sector including the banking industry. I am aware that a lot of families depend to a great extent on the dividend they received from the capital market to pay their children school fees.
“Let me state therefore that attempt to ensure that banks reduce their profits or become less attractive in terms of profitability may weaken the capital market as it is today. There is no economy that can develop to the maximum of its capabilities without strengthening its capital market.
“We therefore must be cautious in making comments about the perceived excessive profitability of Nigerian banks. We do have a responsibility to develop the economy but however, against this, we also have to grow the portion generated for profit to ensure that we shore up our shareholders’ funds which also enable us to have larger single obligor limit to do large ticket transaction.
“Let me take it from another perspective. How many Nigerian banks have return on equity invested in excess of 15 per cent? I dare say you cannot count five. And so when you measure the profitability of banks, you need to relate it in relative terms, to the return on equity invested, which is a measure of the returns expected by those who invested in those organisations. I therefore say that the present attractiveness for foreign investors to invest in Nigeria is through the attractiveness they have found in the few Nigerian banks that are declaring good returns in relative terms.