Dr. Jerry Igwilo is a credit bureau expert and the Chief Finance Officer of Heyden Petroleum Limited. In this interview with NGOZI AMUCHE, he bares his mind on how to strengthen credit administration and management for Nigeria’s economic growth, saying Nigeria should not borrow to manage recurrent expenditure. Excerpt.
What are your recommendations on how to strengthen credit administration and management for Nigeria’s economic growth?
The process of credit administration and management can easily be strengthened if the credit administration and management professionals can adhere to the basic fundamentals of credit analysis, when processing a loan request by a customer, which is encapsulated in the 5 C’s of credit. These includes: CHARACTER, before lending money to a customer, we need to know who the customer is and who the guarantors are. Are they honest people and do they have requisite integrity to keep to their promises? Consequently, we need to be confident that the customer has the background, education, industry knowledge and experience required to successfully operate the business for which the loan is being advanced to him, in case of a business loan. The bank may demand a certain amount of management and or ownership experience. They should also ask about licensing and whether or not the customer has a criminal record. These factors are key to strengthening the credit administration and management in order to grow our economy. In my view, this is the most important C in the 5 C’s of credit analysis. The others are Capacity, Condition, Capital and Collateral.
Nigeria has got a huge credit stock. As a credit professional, do you advise more borrowing to add to the loan stock or we begin to liquidate existing loans?
In my view, the country has about 21 per cent loan to GDP ratio. For this reason, the country is in a good position to increase its loan stock. But fundamentally, we need to understand why countries borrow. If you borrow and invest in infrastructure, such that the future generation will benefit , it is also good and fair that the future should pay for that infrastructure. That is the major reason why countries borrow. So, it is good and well that we borrow today. Since the cost of borrowing today is assumed to lower when you factor time to the value of money, because you don’t know what cost is going to be in the future because the future is unknown to everybody.
For us to grow our economy, for us to build the quantum of infrastructure that we require in this economy today, the country needs to borrow. But one thing that is critical and very important is that, when we borrow, we must manage it well. We should not borrow to manage our recurrent expenditure, for non-capital expenditure. That is wrong. We must borrow for capital expenditure only. That means, we will be investing for the future so that the generation to come will be able to also pay for the benefits they are going to derive from these capital projects. So, I think the country is good to borrow but the administration of this borrowing must be enhanced so that the goals and objectives of the borrowing are met and the country as a whole will be developed in a way that future generation
will enjoy it.
You have just been inducted as a Fellow of the Institute of Credit Administration. As an expert in credit administration, what is your view about credit administration in the country?
We still have a lot of work of to be done in credit administration and management. We have a lot of non-performing loans in the banking sector which is a fundamental issue of credit. If the credit process was done right and appropriately too, there would be a significant reduction in non-performing loans in the system. So, there is a lot of work to be done, and I believe the professionals need to add value to this process; we need to take our position as professionals; we need to take our jobs more seriously to make sure that we add value to this country; we begin to add value to our institutions we work for, we begin to reduce waste in the economy, and be able to grow the economy in general terms.
Do you think it was appropriate for CBN to have retained MPR at 14 per cent despite agitations by manufacturers for single digit interest rate?
First, we need to understand the use of interest rate in an economy. The major tool available to a Central Bank in the targeting and management of inflation is the interest rates. Therefore, the current mandate of the Central Bank is inflation .Targeting the Central Bank, being the bank of last resort, will always want to manage inflation to keep it at lower rate. That is the basis for keeping MPR at such a level because at this point, the country’s inflation rate is stubbornly at just under 12 per cent. The CBN has set MPR at 14 percent. So, using the MPR as a base, the real interest rate is 2. Basically, we are in good shape. We need to be consistent with our monetary policy.
The independence of the CBN is paramount; therefore we should not allow politics to becloud this independence, which can easily prevent us from running a prudent monetary policy. For a prudent policy, we must continue to checkmate inflation. Once our inflation comes down to single digit, then we can begin to consider reducing the interest rate to single digit. But as long as inflation rate is stubbornly above single digit, we need to maintain our resolve to make sure we manage the flow of money in the economy because inflation is a function of too much money chasing fewer goods. So, we need to increase our production capacity. Once we can produce more, then we can limit the impact of money in circulation on the prices of goods. If the inflation which had been on a downward trajectory for the past few quarters continues in that direction, I believe we see a single digit inflation soon and I believe that the CBN will do the
needful accordingly.
Manufacturers are clamouring for single digit inflation rate, what is your take on that?
Everyone that borrows will need to clamour for what he or she will want to pay as the cost of borrowing. However, we need to remember that interest rate itself is not just a function of what the manufacturer wants. It is a function of our monetary policy. The macroeconomic view of the economy is that inflation is in double digit. The responsibility of the CBN is to manage and control that inflation.
For that policy to hold, there must be consistency. And consistency in every monetary policy is key.
Therefore, the CBN must insist on inflation targeting until the point where inflation is single digit and I believe that CBN will do the needful and manufacturers will see the cost of borrowing begin to
come down.
