Deposit Money Banks (DMB) in the country are now embracing activities they consider less risky and more profitable by diverting more funds to treasury bills and other opportunities in the forex market, than giving loans to borrowers, LEADERSHIP findings have revealed.
It was learnt that the seeming reluctance of the banks to grant loans to businesses, is because of the huge non-performing loans in the banks.
The volume of non-performing loans (NPL) in the Nigerian banking industry, according to experts, is expected to rise to as high as N2.3 trillion when the banks begin to release their full financial statements for the year 2016, with the ratio expected to rise above 15 per cent.
The managing director of Nigeria Deposit Insurance Corporation (NDIC), Umaru Ibrahim, had disclosed that about N1.85 trillion non-performing credit facilities, which is 10 per cent of the total credit portfolio of N18.53 trillion, were in the books of the 25 deposit money banks (DMBs) in the country as at the end of December 2016.
Ibrahim also hinted that in the 42 primary mortgage institutions (PMIs) with a total deposit liability of N69 billion, the total credit portfolio was N94 billion as at the end of December 2016, meaning complete erosion of customers’ deposits.
In the microfinance banking sub-sector, which has 978 licensed operators as at the end of December 2016, the deposit liability was reported to be N158 billion, while the total credit facilities amounted to N195 billion, another case of complete erosion of depositors’ funds.
Another reason why the banks have slowed down from granting loans to businesses, especially the real sector of the economy, is because of infrastructural challenges facing the sector.
While the challenges are said to have increased the risk of extending credit to companies, the banks have turned to government securities like treasury bills which they consider as having attractive return on investment and the profitable opportunities in the forex market.
Also, over the weekend, the managing director of Dun and Bradstreet Credit Bureau Limited, a world acclaimed credit reporting agency with headquarters at the Dominican Republic, Mr. Miguel Llenas said most banks in the country today were technically in distress because they chose to jettison core banking regulations.
Experts said banks have, therefore, increasingly found it more attractive to invest their money in treasury bills. Treasury Bills (TBs) are a type of government securities issued on behalf of the federal government by the Central Bank of Nigeria (CBN) to control money supply in the economy.
But unlike other government securities, such as federal government of Nigeria (FGN) Bonds and Federal Government Development Stocks (FRNDS), which are long term in nature, TBills are short term securities issued at a discount for a tenor ranging from 91 to 364 days.
The Central Bank of Nigeria issues treasury bills 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.
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, LEADERSHIP also learnt.
According to the chief executive officer, Adekins Group, Mr. Tayo Adeyemo, getting N1 million loan from the bank in Nigeria today has become very difficult. He said he submitted an application for a loan to a bank and was assured of getting up to N1 million at a single digit interest rate in less than a week.
He, however, said he was later asked to bring collateral that was worth N3 million, a condition that left him frustrated and he had to abandon the loan request.
Mohammed Usman, a farmer in Kuje, Abuja, said he has also been finding it difficult to access the N220 CBN MSMEs intervention fund.
Experts say only one third of small business owners are able to obtain the credit that their businesses need.
Acting director, Corporate Communications of CBN, Mr. Isaac Okorafor, however said many Small and Medium Scale Enterprises (SMEs) are unable to access CBN intervention funds because of lack of business integrity and proper business plan.
The Chairman, Intelligent Focus Nigeria Limited, Ibadan, Oyo state, Mr. Samuel Babajide, lamented that the situation was grave.
According to him, “The big banks, instead of lending, just put money in treasury bills, which is better for them – it is safer, it is secure.
‘‘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.”
Speaking with LEADERSHIP yesterday, the chief relationship officer of Foresight Securities and Investment Limited, Mr. Charles Fakrogha said, ‘‘If in the process of trying to loan money to SMEs, they are not getting returns, the banks are there for profit, they are into business to make profit, they may decide to diversify into other areas, like Treasury bills which is safe, the return is guaranteed, but this will not favour the economy.”
He stated that it was left for the regulator of the banks, the CBN, to begin to look at the activities of these banks and that if the trend continues, it will have a negative impact on the economy, making it difficult for them to get out of recession.
“The banks have to support businesses and this is how the economy can thrive well,” he added.
The managing director of Highcap Securities Limited, Mr. David Adnori, noted that the yield on the government debt instrument is very high to the extent that it has already crowded the productive private sector together with the equities market.
According to him, this has reduced the capacity of the private sector and the equities market to form capital for the economy.
He pointed out that this will have adverse effect on the economy, as the private sector that generally creates the wealth and generates the productive employment that propels the economy are deprived to do so.
An economist and stockbroker with Calyxt Securities and Funds Limited, Mr. Tunde Oyediran added that this practice by banks was not going to help the country’s ailing economy, especially when the attention was now focused on agriculture and import substitute goods.
He said that companies and entrepreneurs need these loans for their businesses, but unfortunately, banks do not want to leave certainty for uncertainty.
Also, Dr. Uche Uwaleke, associate professor and head of department, department of banking and finance, Nasarawa State University said, ‘‘Obviously, banks have failed in their intermediation function when credit is not extended to the productive sectors.
‘‘There is also the issue of high interest rate regime which has made it difficult for many creditors to meet their obligations to the banks. In order to minimise high incidence of non-performing loans, deposit money banks should ensure that credit guidelines are strictly adhered to. The CBN can encourage these banks to stay within the 5 per cent minimum threshold by denying banks with very high NPLs certain privileges such as access to forex.
“Therefore, to be able to finance big ticket projects, diversify risks and contribute meaningfully to export driven investments and real sector growth, deposit money banks in Nigeria can benefit from another round of mergers and acquisitions.”