The lending policy of the Central Bank of Nigeria (CBN) will normalise the credit markets, spur economic growth and broaden the interface between entrepreneurs and the banking industry, the Lagos Chamber of Commerce and Industry (LCCI) said yesterday.
LCCI Director-General Muda Yusuf reacted to the CBN’s July 3 letter to all Deposit Money Banks (DMB), mandating them to maintain a 60 per cent Loan to Deposit Ratio (LDR), in a chat with reporters yesterday in Lagos.
With the CBN directive, the banks were required to give minimum of 60 per cent of their deposits as loans with effect from September 30.
The CBN said the policy was to encourage SMEs, Retail, Mortgage and Consumer lending, adding that it would soon provide a detailed framework for classification of enterprises or businesses.
Yusuf said the new lending policy was a timely corrective measure to improve credits to the private sector, which had for years grappled with issues of credit access, cost of credit and tenure of funds.
He said: “These challenges are more severe for Micro, Small and Medium Enterprises (MSMEs) in the economy.
“The economy was characterised by profound crowding effect of the private sector in the financial markets owing to the diversion of credit to government through the instrumentalities of treasury bills and Federal Government bonds.”
The LCCI boss expressed optimism that the new lending policy would impact the economy through quality financial intermediation while bridging the funding gaps in many sectors.
He said it would improve economic inclusion of more SMEs and promote economic diversification in line with the Economic Recovery and Growth Plan (ERGP).
Yusuf noted that the policy had the probability of reducing interest rate as supply of credit would increase and improve lending creativity and innovation by banks.
“This will result into a broader and more diversified sectoral coverage of lending,” he said.
The economist urged the CBN and the fiscal authorities to adopt measures toward addressing some possible risks in the lending policy.
He proposed the strengthening of the Collateral Registry to enhance the profiling of borrowers in the banking system, adding that the character of borrower had been identified as a major risk factor to lending in the economy.
Yusuf called for scaling up corporate governance practices in the banking system to prevent insider abuse and compromise of credit assessment processes.
He submitted that credit guarantee framework should be strengthened to give comfort to the banks and also promotion of the use of credit insurance.
Yusuf urged the fiscal authorities to effectively address enabling business environment issues, particularly infrastructure deficit and quality, in order to reduce credit risk.
The LCCI boss tasked the CBN to ensure alignment of the new policy with extant monetary policy actions, especially with regards to Cash Reserve Ratio (CRR) and the Liquidity Ratio (LR) which are currently at 22.5 per cent and 30 per cent respectively.