Employers decry high interest rate of LDR to small businesses
Nigeria Employers’ Consultative Association (NECA), has decried the high interest rate raised on loan to deposit ratio (LDR), to assist the real sector, describing it as another hindrance to access to credit, which remained at a double digit rate.
They argued that with volatility of the Nigerian economy, and the unpredictable regulatory environment, the risk of a double digit interest rate could be too high for businesses, especially the Small and Medium Enterprises (SMEs), who are supposed to also be beneficiaries of the fund.
This follows a directive by the Central Bank of Nigeria (CBN), to raise the Loan to Deposit Ratio (LDR) of banks to 65 per cent to assist the real sector.The apex bank gave its regulated entities December 31 deadline, to meet its new requirement to encourage SMEs, retail mortgages, and consumer lending.
Director-General of NECA, Timothy Olawale, urged that the CBN should ensure the effective implementation and monitoring of the directive.
He said more deliberate efforts should be made to ensure a hospitable business environment that will make lending attractive and borrowing by the real sector even more attractive.
According to him, forcing the banks to lend under the current macro-economic situation will only result in a likely build-up of non-performing loans in the medium to long term, given the sluggish growth in the economy, and the high risk in the operating environment.This, Olawale said, could pose a risk to financial stability. “While the objective of the apex bank is clear as regards improving the flow of needed credit to the private sector to stimulate growth, we are concerned that these unorthodox methods being deployed to achieve this aim may have many unintended negative effects if effective monitoring mechanism is not put in place.”
While commending the regulator on the initiative, as the real sector had over the years suffered due to stringent conditions to access needed capital, he said: “The attempt by the CBN is worthy of commendation considering our peculiar situation as a nation and the fact that over N1.5 trillion additional money will be available as credits to the real sector of the economy.”
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