By Rosemary Onuoha
AT the backdrop of renewed fears over toxic assets emanating from loans to the energy sector, the Managing Director of Heritage Bank Limited, Mr. Ifie Sekibo, has called for review of the credit policy specific to the sector.
Following the persistent crises in the electricity sector as well as the crash in oil price in 2014 to 2015 many banks that advanced credit to sector operators were put under bad loan pressure. Consequently, most banks now shy away from lending to the sector, especially with a renewed instability in the oil price.
Speaking at the third edition of the annual Vanguard Economic Discourse yesterday in Lagos, Sekibo said that for the energy sector to grow, banking sector regulatory bodies should revisit policies on granting credit to the energy sector.
This, he explained, is because if the banks can’t grant loans to the energy sector, it will remain comatose, unable to grow, empower and impact on the citizens. He was speaking against the backdrop of the theme of the Discourse, “Human Development Index vs Economic Growth: Nigeria’s Policy Options”.
He noted that because the banks are already exposed by over 35 percent to the energy sector, Nigerian banks cannot effectively finance the power sector except new legislations are formulated.
Speaking at the 2019 Vanguard Economic Discourse, themed, “Human Development Index Vs Economic Growth; Nigeria’s Policy Options”, Sekibo said that except there are policy shifts, there is no light at the end of the tunnel for power sector growth.
Sekibo stated: “As banks, we are today roughly exposed to the energy sector and power sector combined by about 35 percent and those exposures are ones that we don’t see any light in the tunnel, to the extent that they are challenging. The exposures are already impaired in the banks’ books. And if they are impaired in the banks’ books the problem then becomes how are we going to ramp up energy requirement without headroom within the banks and this is one problem we need to deal with or one thing we need to talk about; what kind of policies to deal with it?
“No matter the kind of policies we want to formulate for energy solution, if the banks are not able to extend more money to that sector, the possibility of growth in that sector is very slim.
“To add to the problem is an interesting financial reporting concept which we are just about to implement called the International Financial Reporting Standard, IFRS, line. Strangely, it practically takes out the appetite to carry on extra weight where a particular sector is not performing well.
“If we cast our minds back, until the banks step in to begin to deliberately advance funds to certain sectors of the economies, they were in comatose including agriculture.
“So the first point I am trying to push across is for policy revisit on how to deal with certain constraints which sometimes are regulatory, but how do you legislate beyond the regulation to allow for some headroom to enable growth to take place. As usual, bankers will say ‘give us some forbearance; narrow the Non Performing Loans, NPL, down to where they will be reasonable.’
“However, the reality is that regulation has set the NPL not to be more than five percent. Today, the truth is that on the average the banks in Nigeria are beyond that limit.”
Sekibo also said that another measurement for economic development is money supply, adding that there is need for accurate policies that will have direct impact on citizens.
He stated: “As bankers what we look at is your cash or your ability to borrow or reserves kept with us, or documents or some other means that we can account for. But the elephant which is a sour point in this country is the minimum wage. For me I look forward to the minimum wage because it will swell the bankers’ balances, more monies will come to the accounts of the customers and so it is interesting.
“But the challenge is that it will increase our liquidity, and if it does increase our liquidity, yes there will be more money to spend, but there is one interesting measurement for economic growth and that is money supply measurement. If that goes on, the effect is that there will be inflation.
“Once there is inflation, it means that the money that we are hoping that we get, goes through the roof by increased prices and we are just going to lose that money without even getting the benefit of that increase.
“Of course, the regulators will almost immediately, find a way to mop that up so that they can keep inflation within parameters that are reasonable.
“I have to push these two fixes for us to know that, yes there is need for economic growth and human development, but the policies surrounding each of these need to be developed further.
“Policies that have direct impact on what is left in my bank account and savings is actually one of the parameters for which we need to develop further in terms of what new things we can bring on board as well as what technology we can invest in, either based on our savings or investment in one way or the other.
“If we are unable to create policies that doesn’t address what is left over after we take care of the developmental social problems, then we wouldn’t have solved the problem.”