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Why banks shun lending to small businesses

The Governor, Central Bank of Nigeria, Mr. Lamido Sanusi
As banks increasingly find it more attractive to invest their money in treasury bills, accessing needed credit has become a nightmare for small and medium-sized businesses, our correspondent has learnt.

The Central Bank of Nigeria issues treasury bills twice a month to reduce money supply, curb inflation and help banks manage their liquidity.

Interest rates on the bills range from 12 per cent to 15 per cent, a development that economists, financial experts, microfinance banks and entrepreneurs say make them the preferred option for banks.

The consequence, they explain, is that businesses have little chances of accessing needed credit for growth; and those that succeed, get the funds at very high interest rates.

“For you to get N1m out of a bank in Nigeria, you need to probably deliver some blood,” the Chief Executive Officer, Puzzles Group, Mr. Bayo Adeyemo, told our correspondent.

This, he said, was because “the monetary policy of the country is pro-government. So the banks are just willing to sit around the government and play around it; they don’t want to take risks.”

The Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, noted that interest rates as pegged by the CBN and reflected in the treasury bills was bound to be attractive to the banks.

He said, “Treasury bill rate at 12 per cent or 14 per cent truly attracts funds into government instruments.”

The Chairman, National Association of Microfinance Banks, South-West Zone, Mr. Olufemi Babajide, said the situation was grave.

He said, “Nigeria is becoming very difficult; and that starts from the T-Bill rates, which starts from 14 per cent to 15 per cent. So, the big banks, instead of lending, just put money in treasury bills, which is better for them – it is safer, it is secure.

“So, those of us that are accessing funds do so at very high rates. If we can get 15 per cent from treasury bills, what would you be expecting from MFBs? Not less than 18 per cent to 19 per cent; and MFBs that access funds from the big banks get these funds at over 30 per cent per annum.”

Last month, the Chairman, Board of Directors, Prolific Microfinance, Bank Limited, Mr. Edward Akinlade, said even if microfinance banks got access to deposit money bank loans, it would not be possible for them to give out loans at interest rates less than what the CBN borrowed funds.

Speaking at the bank’s stakeholders’ forum, he had said, “Microfinance banks need access to funding. That is not available at the moment and that is why many of them are going to fade away.”

An entrepreneur and economist, Mr. Henry Boyo, while acknowledging the difficulty businesses have in order to access funds, also commented on the implication of the high interest rates on the economy.

He said a situation whereby the CBN on behalf of Nigeria “borrows money it does not need at interest rates as high as 12 per cent” was not suitable for the development of the county. He said, “You cannot also build up an industrial base if the industrialists in your country have to borrow at over 20 per cent. Countries don’t grow in that manner.”

An employee of one of the commercial banks, who did not want to be named, confirmed that consumer lending was above 20 per cent.

The source said, “The Prime Consumer Lending Rate is 24 per cent, but we process at 26 per cent, which is PLR + 2 for individuals and commercial customers. For government, the PLR is 22 per cent, but we process at 20 per cent, which is PLR – 2.”

Asked about lending rates for microfinance banks, the source said it had been a long time since any branch of the bank was involved in microfinance lending, as such, the rate could not be ascertained.

At a press conference recently, the Managing Director, Diamond Bank Plc, Dr. Alex Otti, admitted that the interest rates were high.

He said, “I must be honest, the rates are very high. “T-Bills are somewhere between 14 per cent and 15 per cent; so, why would banks want to lend to someone at 16 per cent? The easier thing to do is to put your money in T-Bills.”

Otti, however, stressed that regardless of how attractive treasury bills were, Diamond Bank, which had continuously designed programmes for Micro, Small and Medium Enterprises, would continue to grant loans to individuals and businesses.

As businesses continue to lament the dearth of credit facilities and high interest rates, the banks say they lack the funds to grant loans.

In August, the CBN sold N172.1bn ($1.1bn) in treasury bills and increased the yield offered on the short-dated paper to mop up liquidity to support the naira.

The CBN said it sold N50bn of 182-day treasury bills at a yield of 15.30 per cent, higher than 14.94 per cent at the previous auction in July.

Source - Punch news

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