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Experts berate FG over stifling effect of policies on banking operations

By Helen Oji and Gloria Nwafor
01 April 2020   |   4:28 am
Experts in the financial industry have bemoaned the stifling effect of Federal Government’s (FG) policies on commercial banks, insisting that these strategies are already taking a toll on banking operations.

Experts in the financial industry have bemoaned the stifling effect of Federal Government’s (FG) policies on commercial banks, insisting that these strategies are already taking a toll on banking operations.

The experts said that most of the policies by the Central Bank of Nigeria (CBN), were hindering customers from transacting business with the banks, thereby giving the fintech companies advantage over the banks.

For instance, the Founder of Stanbic IBTC Plc, Atedo Peterside flayed the CBN decision to retain Loan to Deposit Ratio (LDR) at 65 per cent, urging the apex bank to reconsider its decision in order to forestall further depreciation in banking stocks in the nation’s bourse.

He stressed the need for government to engender and fast track far reaching economic reform programmes that would bring about a more favorable economic climate, boost real sector operations and ultimately bring about a reduction in inflation rate to five per cent.

He stated that the stock market is on a downtrend due to the CBN monetary policy decisions of the apex bank.. He noted that the new policies had impacted negatively on share prices of banking stocks, which have continued to witness a free fall thereby, depressing the All-share index and market capitalisation.

“What the CBN has done is to come out with a loan to deposit risk which is rigid and punitive. The logical implication of that is that if banks take deposit, they must take loan for you and when they do not find loans to take, they stop deposits because if they take it, they cannot realise them.

He continued: “So if inflation is 12 per cent and banks are offering you deposit at one per cent to two per cent, what are the likely things you are going to do, you can buy foreign exchange, because investors have a choice, you can buy property, and you can also buy foreign exchange.

“Unless you are buying a stock that you know is going to be very cheap and it has value in dollar terms, the short every body does is to think about speculating in foreign exchange, so these are the things that are making it impossible for the stock market to function.”

According to him, the government must target a reduction of inflation rate to about five percent, if the nation must record reasonable level of growth.

The Head of Research, FSL Securities, Victor Chiazor said the hike in the banking sector’s mandatory Cash Reserve Ratio (CRR) may ultimately trigger a huge rise in non-performing loan ratio especially for banks that do not have an appropriate framework to manage risks associated with such huge loans.

He argued that since these charges constitute a large portion of banks’ revenue hitherto, failure to devise other means to augment the adjustments would impact negatively on the banks going forward.

According to him, some banks’ charges constitute more than 20 per cent of their total revenue at the end of every financial year.

“These reductions from the initial figure will automatically affect banks’ revenue. The reduction is quite significant for the banks. These charges formed part of the banks’ income before now.

“If they could not device some other means to augment these charges, that may impact their bottomline and profitability.” The National President, Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI), Oyinkan Olasanoye, told The Guardian that the reduction on interest rates, both in the Treasury Bills (TBs) and the depositor’s interest rate as announced by the CBN, are posing a challenge to the ability to secure loans for small scale business.

According to her, the new policy may compel depositors to withdraw their fund from the banks and look for a more stable alternative such as the foreign exchange market. She said: “Although, the Federal Government want more industries and small and medium scale enterprises in the country, they want people to go into production, but the condition available for people to access loan have not been easy.

“Federal Government gave banks sanction that they must make loan available for people without collateral but for banks to do this, they must be able to see your cash flow and the business growth, but businesses that do not have the necessary equipment, how will they grow? Also, the bill on stamp duty goes directly to government’s coffers.

“All these policies are dragging people from transacting business with banks because nowadays for every little transactions there is bill attached to it. You will rather keep your money at home.

“Indirectly, the fintech companies will be getting more business while the banks will be going down. Most of the policies are affecting the banks, they are giving the fintech companies advantage over the banks.”

The Chief Research Officer of Investdata Consulting, Ambrose Omordion said: “The Central Bank of Nigeria unconventional Loan to Deposit Ratio (LDR) policy was to make the banks play their traditional role of lending to create money. It is obvious that the banks are the engine room of nations economic development through providing credit for private sector.

“This is also expected to stimulate economic productivity that drive growth and development. This productivity on the other hand is expected to boost the macro economy and the overall earnings and performance of the banks.

“On the contrary, if the banks after struggling to meet the loan to deposit ratio and the economy remain in this weak and slow recovery pace, it would definitely throw the banks back to era of high non performing loan.”