The group managing director/CEO First City Monument Bank (FCMB), Mr Ladi Balogun, has attributed Nigerian banks’ inability to continue to significantly lend to businesses to weak capital and high cash reserve ratio of 22.50 per cent.
The Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of customers, which commercial banks have to hold as reserves either in cash or as deposits with the central bank. At some point, the CRR was 8 per cent.
Speaking on the sidelines of the 10th Chartered Institute of Bankers of Nigeria (CIBN) annual conference held in Abuja, Balogun said that banks need additional capital to lend and support the economic diversification programme of the Buhari government.
He made the comment while reacting to a call by the president at the conference that banks should key into the economic diversification programme of the government.
“The banking sector is definitely facing challenges around capital. We need to address that. The capital market is depressed thus it’s difficult to raise capital in the market. Most foreign investors are not willing to invest in equities at this time and most retail investors have their capital eroded with the hardships we are facing. So without additional capital, it will be difficult for banks to significantly and rapidly lend to businesses.
“The other challenge is that midsize banks are the ones that support SMEs the most and attention should be paid to mid-size banks to ensure they lend to SMEs.
“The problem is not even the 14 per cent interest rate, the real problem is that a lot of SMEs are still borrowing at about 30 per cent interest rate and what can we do to change that. There are lots of things that can be done to de-risk the environment. I also think that the cash reserve requirement is extremely too high. That means that in addition to the 14 per cent interest rate, before banks will make a profit, they will probably need to add another 7 to 10 per cent to that. There is definitely a case for bringing down cash reserve requirement in this country,” he noted.
Earlier in his speech, President Muhammadu Buhari said economic diversification is at the front burner of his administration.
The President who was represented at the event by the permanent secretary, ministry of finance, Alh. Mahmoud Isa Dutse, said: “We have for long neglected other important sectors of the economy.