Nigeria’s Finance Minister says high interest rate not good for economy

The interest rate charged by Nigerian banks are not conducive for the survival of businesses, says , Dr. (Mrs.) Ngozi Okonjo-Iweala,  Coordinating Minister for the Economy and Minister of Finance.

“We really need to look at our banking sector again. I think the interest rates being charged by banks in this economy are too high. There is no way businesses can survive with this kind of approach and I wonder what is behind these rates, because the banks are now strongly capitalised”,  she said in Lagos at a Consolidative Forum  on Budget 2013 with private sector operators and civil societies organisations .

Data from the Financial Market Dealers Association of Nigeria (FMDA) shows that as at July 9th, average lending rate by banks for normal customers was 20 per cent and 18 per cent for prime customers.

These, participants at the meeting said were too and wanted government to intervene.

Okonjo in her response agreed with the participants that the interest rates are indeed high. She said, “They  (the banks) have one of the best Capital Adequacy ratios in the world, non performing loans, below five per cent, thanks to the work that was done be Central Bank of Nigeria. So, what is the issue? How do we get these banks to be developmental in their approach so that they can support small and medium enterprises? We are going to look into that because I think that interest rates in the economy are too high.”

According to the Monetary Policy Committee of the CBN in the communiqué issued at the end of its meeting in May, “The average maximum lending rate rose to 23.31 per cent in April 2012 from 23.21 per cent in March while the consolidated deposit rate rose to 3.93 per cent from 3.79 per cent during the same period. Thus, the spread between the average maximum lending rate and the consolidated deposit rate narrowed further to 19.38 per cent in April 2012 from 19.42 per cent in March 2012.”

Participants at the Forum also criticised government borrowing activities, which they said is denying the private sector of loans for investment.  Okonjo-Iweala acknowledged that indeed the government borrowing from banks is posing a threat to the economy. She said that the federal government has already taken steps to reduce borrowing from the banks. She said, “For 2011 budget, we borrowed N852 billion, we brought this down to N744 billion in 2012 budget and we are going to take it down in 2013 budget. What we are aiming at is to bring it down to a level of about N500 billion in the medium term.”

The MPC in its communiqué said that, “Relative to the level at end-December 2011, aggregate domestic credit (net) declined by 2.04 per cent in April 2012, translating to a decline of 6.12 per cent on annualized basis. The decline in aggregate credit during the period was mainly due to the decline in credit to the core private sector. Credit to the core private sector declined by 0.22 per cent or 0.66 on annualized basis while credit to Government (net) declined by 58.03 per cent in Q1 of 2012. Despite the decline in credit to core private sector, overall credit to the private sector rose marginally by 0.06 per cent or 0.18 per cent on annualized basis. This is indicative of a disturbing trend of growth in lending to States and Local governments at the expense of the core private sector.”

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